2.3 The demand for farmed salmon from your firm is random. Assume that the market is perfectly competitive and that on any given day the price of a pound is either $4.40 or $4.80, with a probability of 0.50 for either possibility. The marginal cost of producing a pound of salmon is MC=0.02QMC=0.02Q.

a. What is your firm's expected price and expected marginal revenue?

b If you produce so that your expected marginal revenue equals your marginal cost, E[MR]=MCE[MR]=MC, how much profit is lost if the price turns out to be $4.80? How much is lost if the price turns out to be $4.40?

c. Presuming that each day you can change the price of your salmon, what is the value of a perfect forecast of the demand