Ephemeral Services Corporation (ESCO) Knows That Nine Other Companies Besides

question 8

Multiple Choice

Ephemeral Services Corporation (ESCO) knows that nine other companies besides ESCO are bidding for a $900,000 government contract. Each company has an equal chance of being awarded the contract. If ESCO has already spent $100,000 in developing its bidding proposal, what is its expected net profit?

• A)$100,000
• B)$90,000
• C)-$10,000
• D)$0

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Definitions:

Marginal Cost

The expenditure associated with creating one more unit of a good or service.

Market Equilibrium

A situation in which the supply of an item is exactly equal to its demand, leading to a stable price for the item in the marketplace.

Negative Externality

A cost suffered by a third party due to an economic transaction that they were not involved in, often without compensation.

Externalities

External impacts of an economic activity on unrelated third parties, which can be either positive or negative.