If the Producer of a Product Has Entered into a fiXed

question 8

Multiple Choice

If the producer of a product has entered into a fixed price sale agreement for that output, the producer faces:

• A)a nice steady profit because the output price is fixed.
• B)an uncertain profit if the input prices are volatile.This risk can be reduced by a short
• Hedge.
• C)an uncertain profit if the input prices are volatile.This risk can be reduced by a long
• Hedge.
• D)a modest profit if the input prices are stable.This risk can be reduced by a long hedge.
• E)a modest profit if the input prices are stable.This risk can be reduced by a short hedge.

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Definitions:

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