Suppose a Risk-Neutral Competitive Firm Must Set Output Before It

question 94

Multiple Choice

Suppose a risk-neutral competitive firm must set output before it knows for sure the market price.Suppose the market price is given by p = p* + e,where p* is the mean price and e is a random term with an expected value of zero.Then in order to maximize expected profits,the firm should produce where:

• A) p = MC.
• B) p* = MC.
• C) p* + e = MC.
• D) p > MC.

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