Assume pricing responds to costs

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Assume pricing responds to costs. How does a monopolists' profits fluctuate with cost fluctuations? As a monopolist, would you prefer volatile costs or constant costs? Why? (Hint: try to model demand as being linear and model cost fluctuation as cost being high with 50% probability and cost being low with 50% probability. Model constant costs as being half-way between high and low costs with 100% probability. Calculated expected profits and compare.)

Reference no: EM131853111

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