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A question of uncertainity Suppose that a risk neutral competitive rm has to make its output (y) decision before it observes the uncertain output price,

A question of uncertainity

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Suppose that a risk neutral competitive rm has to make its output (y) decision before it observes the uncertain output price, p. Assume that p is a random variable whose mean is E(p) = 2 and whose variance is Var(p) = 4. Assume that p is always greater than 1 (this ensures that there is always a strictly positive solution for y, regardless of what 10 is). Let the cost function be given by C = y + 3?. How much is the rm willing to pay for information about p

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