Appleway Industries produces apple juice and sells it in a competitive market. The firm's manager must...

 

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Appleway Industries produces apple juice and sells it in a competitive market. The firm's manager must determine how much juice to produce before he knows what the market (competitive) price will be. Economists estimate that there is a 40% chance the market price will be $2.40 per gallon and a 60% chance it will be $1.50 when the juice hits the market. If the firm's cost function is C = 142.3 + 0.003Q² and its marginal cost (MC) function is MC = 0.006Q, how much juice should be produced to maximize expected profits? What are the expected profits? Appleway Industries produces apple juice and sells it in a competitive market. The firm's manager must determine how much juice to produce before he knows what the market (competitive) price will be. Economists estimate that there is a 40% chance the market price will be $2.40 per gallon and a 60% chance it will be $1.50 when the juice hits the market. If the firm's cost function is C = 142.3 + 0.003Q² and its marginal cost (MC) function is MC = 0.006Q, how much juice should be produced to maximize expected profits? What are the expected profits?

Answer rating: 100% (QA)

Expected profit depends on the expected price Expected price P 40 expectation 60 ex... View the full answer