If the Producer of a Product Has Entered into a Fixed

question 45

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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