Market Influences on Business Strategies

Question 1

Expected Value

Answer 1

The expected value of a product is the weighted average of the potential outcomes. It is calculated by taking the expected volume of sales and multiplying by the estimated probabilities for each potential outcome and adding together.

Question 2

Expected order of returns to scale as a firm expands productions

Answer 2

The long run average cost curve falls, reaches a flat segment, and then rises. This pattern is consistent with increasing returns to scale (economies of scale and falling average costs), constant returns to scale (constant or flat average cots, and finally decreasing returns to scale (rising average costs due to diseconomies of scale), making this the correct answer.