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?
A. Calculate the expected market price.
B. what output should you ...
This solution describes the steps to calculate expected profit in the given case.