Business, 09.03.2020 16:36 jacobiroberts18

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) = 2Q + 3Q2. 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 70 percent chance the market price will be $200 and a 30 percent chance it will be $600. a. Calculate the expected market price. $ b. What ouptut should you produce in order to maximize expected profits? units c. What are your expected profits? $

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Answer from: Undrea43

Explanation:

a)Their is a 70 percent chance the market price will be $200 and 30 percent chance it will be $600. Thus , expected market price is calculated as follows

Expected market price = 0.7 * 200+0.3*600

= 320

b) The expected profit maximixing output is set were margina cost is equal to marginal revenue .The margina revenue is calculated

Expected market price = 2 + 6Q

320 = 2 + 6Q

6Q = 318

6Q = 53 unit

53unit is the expected profit maximixing output

c)The expected profit is calculated below

profit = Total revenue – Total expense

= 14,405

Answer from: abilovessoftball

a. $320

b. 53 units

c. $8,427

Explanation:

a. Calculate the expected market price.

The expected market price is obtained by adding the multiplications of each of the two market prices and their respective probability as follows:

Expected market price = (0.7 × $200) + (0.3 × $600) = $320

Therefore, the expected market price is $320.

b. What output should you produce in order to maximize expected profits? units

Note that the correctly stated cost function is C(Q) = 2Q + 3Q^2.

Also, in a perfect competitive market, profit is maximized when price (P) is equal to marginal cost (MC) ( i.e. when MC = P)

Differentiating the cost function with respect to Q to obtain the MC as follows::

dCCQ)/dQ = MC = 2 + 6Q (1)

Since, in a perfect competitive market, profit is maximize MC = P, and we know that expected market price (P) is $320 in a above, we therefore equate equation (1) to 320 and solve for Q as follows:

2 + 6Q = 320

6Q = 320 - 2

6Q = 318

Q = 318 ÷ 6

Q = 53 units

Therefore, output that will maximize expected profits is 53 units.

c. What are your expected profits? $

Expected total revenue = Expected market price × Expected units

Expected total revenue = 320 × 53 = $16,960

To obtain expected total cost, substitute 53 units for Q in the cost function as follows:

Expected total cost = C(53) = 2(53) + 3(53^2) = 106 + 8,427 = $8,533

Expected profit = Expected total revenue - Expected total cost

Expected profit = $16,960 - $8,533 = $8,427.

Therefore, expected profits is expected profits is $8,427.

Answer from: Quest

answer; (a) searching for information can be done quickly;

Answer from: Quest

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi

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