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Managing in Monopolistic, Monopolistically Competitve market

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You are the manager of a small US firm that sells nails in a competitive US market (the nails you sell are a standardized commodity, and are identical to those available from hundreds of other suppliers). You are concerned about two things you recently read (1) the overall market supply of nails will decrease by 2% due to exit by foreign competitors and (2) due to a growing US economy the overall market demand for nails with increase by 2%. Based on this info, should you plan to increase or decrease your production?

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Solution Summary

This problem will help students learn the concepts of monopolistic and monopolistically competiive makets.

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(1) Will shift the supply curve upward (to the left). The equilibrium price will increase, at the same time the equilibrium quantity will decrease. Some of the supply by the foreign competitors would be shares by the other competitors and some of it would be lost permanently. The ...

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