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Finding optimal production level

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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 C(Q) = Q + 3Q^2, 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.

How many units should you produce to maximize expected profits?

What is your expected profit or loss?

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Solution Summary

Solution describes the steps to find output level which can maximize expected profits.

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How many units should you produce to maximize expected profits?

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Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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