Suppose you are the manager of a firm that sells a "commodity" in a market that resembles perfect competition, and your cost function is C(Q) = 2Q + 3Q2. Unluckily, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market and you believe that there is a 70 percent chance the market price will be $200 and a 30 percent chance it will be $600.
1. Determine the expected market price.
2. Discuss what output should you produce in order to maximize expected profits?
3. How can calculate your expected profits?