An Apple Farmer Must Decide How Many Apples to Harvest

question 23

Multiple Choice

An apple farmer must decide how many apples to harvest for the world apple market.He knows that there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.5, and a one-third probability that it will be $2.His cost function is C(Q) = .01Q².If the farmer is risk neutral:

• A)He strictly prefers to produce the expected profit maximizing quantity to producing nothing.
• B)He is indifferent between producing the expected profit maximizing quantity and producing nothing.
• C)He should produce at a quantity in between zero and the expected profit maximizing quantity.
• D)He strictly prefers to produce.

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Definitions:

Individual Demand Curves

Graphical representations showing the relationship between the price of a good and the quantity demanded by an individual consumer, holding other factors constant.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used by anyone and one person's use does not reduce its availability to others.

Free-Rider Problem

A situation where individuals consume a public good without contributing to its cost, benefiting from the good without paying for it.

Samuelson's Theory

Refers to economist Paul Samuelson's contributions to economic theory, including insights on public goods, trade, and welfare economics.