As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this large neighborhood. There is a 60 percent chance of low demand and a 40 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are  P = 400,000 −400Q and  P = 900,000 −250Q, respectively. Your cost function is C(Q) = 125,000 + 430,000Q.   How many new homes should you build, and what profits can you expect? Number of homes you should build:  homes

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this large neighborhood. There is a 60 percent chance of low demand and a 40 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are 

P = 400,000 −400Q and 

P = 900,000 −250Q, respectively. Your cost function is C(Q) = 125,000 + 430,000Q.

 

How many new homes should you build, and what profits can you expect?

Number of homes you should build:  homes

 

Profits you can expect: $ 

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