Happy Cows and Free Cows are two separate perfectly competitive dairy farms. The table above shows the respective firms' marginal cost at various production levels.
-Refer to the table above. Suppose the perfectly competitive market for dairy products had a 40 percent chance of a high price of $3.00 and a 60 percent chance of a low price of $2.00. However, both Happy Cows and Free Cows have revised their probabilities and now believe that the probability of a high price of $3.00 is 80 percent and the probability of a low price of $2.00 is 20 percent. If the managers of Happy Cows want to maximize expected profit based on the new probabilities by how much will they change the quantity produced?
Definitions:
Obligations
Duties or responsibilities imposed by law, contract, or moral duty, requiring individuals or organizations to act in a certain manner.
Sellers and Buyers
Parties engaged in the exchange of goods or services for payment in a marketplace.
Tender
An offer by a party in a contract to perform, along with being ready, willing, and able to perform, a duty outlined in that contract.
Conforming Goods
Goods that meet the specifications and quality standards outlined in a purchase contract.
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