Computing expected price and profits

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Reference no: EM1349901

You are a manager of a firm that sells a "commodity" in market that resembles perfect competition, and your cost function is C(Q) = Q + 1Q^2. 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 percent chance the market price will be $100.00 and a 40 percent 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?

Reference no: EM1349901

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