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    Profits in uncertain conditions

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    You own a small firm that manufactures and sells a standardized product in a marketplace that closely resembles perfect competition. You have estimated your total cost function at CQ = Q + 3Q2, and your marginal cost function as MC = 1 + 6Q. In trying to plan for the upcoming year, you estimate there is a 75 percent chance the market price will be $100 and a 25% chance it will be $120. Please show all work...

    a. Calculate the expected market price. Show your calculations.

    b. How many units should you produce to maximize expected profits? Show your work.

    c. What is your expected profit or loss? Again, show your work.

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    Solution Preview

    You own a small firm that manufactures and sells a standardized product in a marketplace that closely resembles perfect competition. You have estimated your total cost function at CQ = Q + 3Q2, and your marginal cost function as MC = 1 + 6Q. In trying to plan for ...

    Solution Summary

    This posting helps to calculate the expected market price.

    $2.19