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4. You are the manager of a rm that sells a \"commodity\" in a market that resembles perfect competition, and your cost function is C(Q) = 2Q + 3Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a T0 percent chance the market price will be $200 and a 30 percent chance it will be $600. a. Calculate the expected market price. The expected market price is 0.7*$200 + 0.3 *$600 = $320. b. What output should you produce ingrderjg maximize expected prots? To determine expected prot maximizing output set MR = MC. MR equals price in a competitive market. $320=2+ 6Q $318=6Q Q = 53 units c. What are your expected prots? TC = 2Q + 3Q2 TC = 2*53+3*(53*53) =8533 TR = 53320 =16960 Prot = TR TC = 16980 8533 = $8427 Profits: 8427 10. Life insurance policies typically have clauses stipulating the insurance company will not pay claims arising from suicide for a specied termtypically two years from the date the policy was issued. Use precise economic terminology to explain the likely impact on an insurance company's bottom line if it were to eliminate such a clause. It's the case of market for lemon problem and moral hazard problem. Insurer has no knowledge about futuristic Md insurance policy holder (cannot judge his future pattern) and policyholder wants to take the advantage of insurance company by committing suicide. If insurance company does not print the clause then the number of such person will apply more for policy and would claim the policy amount. As a [gilt loss to company will increase