An Apple Farmer Must Decide How Many Apples to Harvest

question 1

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 $1.50,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 producing 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:

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