February 19, 2017

Homework Help: Economics

Posted by Susan on Saturday, December 5, 2009 at 6:35am.

Janice is producing a new product at marginal cost of £1, and by law she has to sell it for £2. She has to decide how much to produce before she learns the demand. All she knows is that demand will be 20 or 50, with equal probability. If she is just a little bit risk averse, how many units should she produce?

(A) 20 units.
(B) 50 units.
(C) 49 units.
(D) 34 units.
(E) None.

(Solution is A, 20 units)

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