A perfectly competitive firm has a random marginal cost with a 20 percent chance of a high marginal cost of $20 and an 80 percent chance of a low marginal cost of $5. What is the firm's expected marginal cost?

Question

Quizplus · Accepted Answer

The expected marginal cost is calculated by multiplying each possible marginal cost by its probability and then summing these products. Here, it's (0.20 * $20) + (0.80 * $5) = $4 + $4 = $8.

A Perfectly Competitive Firm Has a Random Marginal Cost with a 20