You are the manager of a monopoly and your cost function is C(Q) =2Q.  You need to determine the optimal level of output for your firm, but the demand for your firm’s product will depend on whether or not a new tax law is passed.  If passed, the new tax law will reduce income taxes and increase consumers’ disposable income.  Politicians have determined that there is a 70% chance that the tax law will be passed and a 30% chance that will not.  If the tax law is passed, the demand for your firm’s product will be:   Q = 100 – 2P If the tax law is not passed, the demand for your firm’s product will be:  Q = 75 – 3P How much output should you produce to maximize expected profits? q=45 What is the expected price for your product? (Round to one decimal place) What are your anticipated profits? (Round to the nearest whole number)

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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You are the manager of a monopoly and your cost function is C(Q) =2Q.  You need to determine the optimal level of output for your firm, but the demand for your firm’s product will depend on whether or not a new tax law is passed.  If passed, the new tax law will reduce income taxes and increase consumers’ disposable income.  Politicians have determined that there is a 70% chance that the tax law will be passed and a 30% chance that will not.  If the tax law is passed, the demand for your firm’s product will be: 

 Q = 100 – 2P

If the tax law is not passed, the demand for your firm’s product will be:

 Q = 75 – 3P

How much output should you produce to maximize expected profits?

q=45

What is the expected price for your product? (Round to one decimal place)

What are your anticipated profits? (Round to the nearest whole number)

 

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