A Risk-Neutral Monopoly Must Set Output Before It Knows the Market

question 31

Multiple Choice

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The expected profit-maximizing quantity is:

• A) 5.
• B) 10.
• C) 15.
• D) 20.

---

Definitions:

Incremental Value

The additional value generated by undertaking a new project or decision, calculated as the difference between the value with and without the project.