ABSTRACT
Be it a consumer or a producer, the decision-making we have analysed thus far has assumed an environment of certainty. For instance, a consumer “knows” his preferences (utility function), “knows” the prices of goods and services he intends to consume, and is sure about his total income or expenditure. Given and knowing all of this, he finds the consumption bundle that maximises his utility. A competitive firm “knows” what the market price of the product he sells is and “knows” what the costs of production are. With the knowledge of all this, the profit-maximising output is decided where the marginal cost of production equals the market price.
