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

question 24

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 profits are maximized in the expected sense when:

• A) Expected value of price = E(MR).
• B) MC = Expected value of price.
• C) MC < E(MR).
• D) MC = E(MR).

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