Happy Cows and Free Cows are two separate perfectly competitive dairy farms. The table above shows the respective firms' marginal cost at various production levels.
-Refer to the table above. Relative to Free Cows, the quantity that maximizes the expected profit for Happy Cows is ________ sensitive to demand changes, which makes an accurate forecast_______ valuable to the managers of Happy Cows.

Question

Quizplus · Accepted Answer

Happy Cows has a lower marginal cost than Free Cows at every level of production. This means that Happy Cows will be able to produce more units of output at a lower cost than Free Cows, giving them a competitive advantage in the market. However, because Happy Cows is a perfectly competitive firm, they have no control over the price they can sell their product for, and must take the market price as given. As a result, the quantity that maximizes the expected profit for Happy Cows will be more sensitive to changes in demand, as they will need to adjust their production levels to match changes in the market. This makes an accurate forecast more valuable to the managers of Happy Cows, as they will need to be able to anticipate changes in demand in order to maximize their profits.

Happy Cows and Free Cows Are Two Separate Perfectly Competitive