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# Maximizing Expected Profits

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You are the manager of a firm that sells a commodity in a market that resembles perfect competition, and your cost function is C(Q)=Q+2Q squared. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 60% chance the market price will be \$100 and a 40% chance it will be \$200.

A. Calculate the expected market price
B. What output should you produce in order to maximize expected profits?
C. What are your expected profits?

https://brainmass.com/economics/perfect-competition/maximizing-expected-profits-412549

#### Solution Preview

A. Calculate the expected market price.

C(Q)=Q+2Q^2
Marginal Cost=dC(Q)/dQ=1+4Q
Expected price=100*60%+200*40%=\$140

B. what output should you ...

#### Solution Summary

This solution describes the steps to calculate expected profit in the given case.

\$2.19