Refer to Exercise 3.56. Suppose the firm has a fixed cost

Chapter 3, Problem 57E

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QUESTION:

Refer to Exercise 3.56. Suppose the firm has a fixed cost of $20,000 in preparing equipment prior to doing its first exploration. If each successful exploration costs $30,000 and each unsuccessful exploration costs $15,000, find the expected total cost to the firm for its ten explorations.

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QUESTION:

Refer to Exercise 3.56. Suppose the firm has a fixed cost of $20,000 in preparing equipment prior to doing its first exploration. If each successful exploration costs $30,000 and each unsuccessful exploration costs $15,000, find the expected total cost to the firm for its ten explorations.

ANSWER:

 Solution:

Step 1 of 2:

   Given that, each successful exploration costs is $30,000 and each unsuccessful exploration costs is $15,000. The firm has fixed a cost of $20,000.

  Here we have to find the expected total cost to the firm for its ten explorations.


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