5. Consider a perfectly competitive firm choosing a profit-maximizing level of output. However, there is uncertainty...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
5. Consider a perfectly competitive firm choosing a profit-maximizing level of output. However, there is uncertainty surrounding the market price, P, of their good, generating some uncertainty. The firm's cost function is given by C(Q) = 10 +20 + 402. There is 60% chance that the market price is $42-otherwise a relatively low price of $22 is realized. (Hint: the firm's marginal cost is given by: MC(Q) = 2 +8Q) a) Calculate the firm's profit maximizing level of output under this scenario. What are the firm's expected profits? Will that level of profits ever be realized? b) Suppose the firm can hire an outside consulting firm to provide an improved understanding of the perspective prices. They provide a perfect forecast. How much would our firm be willing to pay for the consulting firm's forecast, i.e. for their information on the future market price? 5. Consider a perfectly competitive firm choosing a profit-maximizing level of output. However, there is uncertainty surrounding the market price, P, of their good, generating some uncertainty. The firm's cost function is given by C(Q) = 10 +20 + 402. There is 60% chance that the market price is $42-otherwise a relatively low price of $22 is realized. (Hint: the firm's marginal cost is given by: MC(Q) = 2 +8Q) a) Calculate the firm's profit maximizing level of output under this scenario. What are the firm's expected profits? Will that level of profits ever be realized? b) Suppose the firm can hire an outside consulting firm to provide an improved understanding of the perspective prices. They provide a perfect forecast. How much would our firm be willing to pay for the consulting firm's forecast, i.e. for their information on the future market price?
Expert Answer:
Answer rating: 100% (QA)
a b we understood that firm will make a profit of 90 when the price is 42 an... View the full answer
Related Book For
Ethical Obligations and Decision Making in Accounting Text and Cases
ISBN: 978-0077862213
3rd edition
Authors: Steven Mintz, Roselyn Morris
Posted Date:
Students also viewed these economics questions
-
You are the design engineer in charge of the crashworthiness of new automobile models. Cars are tested by smashing them into fixes, massive barriers at 50km/h (30mph). A new model of mass 1500 kg...
-
The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2012....
-
The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2012....
-
Refer to the situation described in P 192. Assume Pastner measures the fair value of all options on January 1, 2021, to be $4.50 per option using a single weighted-average expected life of the...
-
Saffron Enterprises Inc., a U.S.-based company, purchases a 4 percent bond denominated in euros for $1,500 on January 1, Year 1, when the exchange rate is $1.50 per euro. (In other words, the...
-
Briefly compare the concepts of simple correlation, partial correlation, and multiple correlation.
-
What are opportunity costs? Why are they important to managers? What is the opportunity cost of not investing in environmental protection? Provide an example to support your answer.
-
How might a company configure its strategy-making processes to reduce the probability that managers will pursue their own self-interest, at the expense of stockholders?
-
A manufacturing plant and equipment cost $150 million and are estimated to have a lifetime of 25 year . Additional fixed costs per year are $4 million. Variable costs are $1.25 and price is set at...
-
Express Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 20%...
-
Evaluate the flux F-dA for = (x+y)i + zk for S which is part of the surfacez =5-x-y above z 1, oriented "downwards". Hint: Consider breaking up the integral of a sum of terms into the corresponding...
-
Multiply. 6(7-6) Simplify
-
A change to the full accrual basis may have little impact upon reported revenues. A city levies property taxes of $4 billion in June 2021 for its fiscal year beginning July 1, 2021. The taxes are due...
-
10:21 docs.google.com CPH SG 3 - DRAFT 19 Done Screening of Hypertension (BP) Screening for hypertension in a community is an essential public health measure intended to identify those who may be at...
-
Adjusted Account Balances Merchandise inventory (ending) Other (non-inventory) assets Total liabilities Common stock Retained earnings Dividends Sales Debit $ 41,000 Credit 130,400 $ 25,000 10,000...
-
Simplify. 1 36 1 + 1 2 y 1 6 y
-
For the following models, determine whether they are stationary or not. If yes, calculate their autocovariance functions (ACFs), that is, Yo, Y1, V2, .. (a) DGP1: yt = 0.75yt-1+ Et (b) DGP2: Yt =...
-
a. Show that the expansion of q(x) in ascending powers of x can be approximated to 10 2x + Bx 2 + Cx 3 where B and C are constants to be found. b. Find the percentage error made in using the series...
-
1. Should we regard Mr. ABC has a new caped crusader or an opportunist? Explain the reasons for your response. 2. Is it ethical for a Wall Street insider to purposefully analyze financial data of an...
-
The audit report on General Motors for 2008 issued by Deloitte & Touche included the following statement: The Corporations recurring losses from operations, stockholders deficit, and inability to...
-
The following statement expresses the conclusion of XYZ auditors with respect to the companys investment in ABC. Assume that all amounts are material. What kind of audit opinion should be rendered...
-
Solve Prob. 8-48 using Castigliano's theorem. Data From Problem 8.48 = ABC 6.5(103) mm IBC 100(10) mm+ AAB = 18(10) mm IAR 400(10) mm+ DA = 3 m B -50 kN 1 m
-
Solve Prob. 8-40 using Castigliano's theorem. Data From Problem 8.40 2 k/ft 8 ft 8 ft B
-
Solve Prob. 8-53 using Castigliano's theorem. Data From Problem 8.53 8 k 10 ft. 8 ft D A B
Study smarter with the SolutionInn App