DBM Industries produces exclusively an SP Juice in the market under the name DBM Sparkle . The firm’s manager must determine how many bottles to produce before he knows what the market price will be. Assume a competitive market situation. Forecast from the Department of Economics (DOE) revealed that, there is 30 percent chance that the market price will be P80 per liter and a 70 percent chance that it will be P40 per liter when the juice hits the market. If DBM’s cost function is C = 200 + .0005Q2, how much juice should DBM produce to maximize expected profit ? How much is the expected price?
DBM Industries produces exclusively an SP Juice in the market under the name DBM Sparkle . The firm’s manager must determine how many bottles to produce before he knows what the market price will be. Assume a competitive market situation. Forecast from the Department of Economics (DOE) revealed that, there is 30 percent chance that the market price will be P80 per liter and a 70 percent chance that it will be P40 per liter when the juice hits the market. If DBM’s cost function is C = 200 + .0005Q2, how much juice should DBM produce to maximize expected profit ? How much is the expected price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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DBM Industries produces exclusively an SP Juice in the market under the name DBM Sparkle . The firm’s manager must determine how many bottles to produce before he knows what the market price will be. Assume a competitive market situation. Forecast from the Department of Economics (DOE) revealed that, there is 30 percent chance that the market price will be P80 per liter and a 70 percent chance that it will be P40 per liter when the juice hits the market.
If DBM’s cost function is C = 200 + .0005Q2, how much juice should DBM produce to maximize expected profit ? How much is the expected price?
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