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:

Binary Variable

A variable that can take one of two possible values, typically represented as 0 or 1, indicating the absence or presence of some characteristic.

Double-subscripted Variables

Variables represented with two subscripts, often used in mathematical and economic models to denote the elements of matrices or arrays.

Binary Variable

A variable that takes one of two possible values, often used to represent outcomes like success/failure, yes/no, or true/false.

Demand Constraint

A limitation in operations management that affects the maximum demand that can be satisfied given current resources.