Purchase Solution

Production decisions given changes in demand and supply.

Not what you're looking for?

Ask Custom Question

You are manager of a small U.S firm that sells hammers in a competitive U.S. market (the hammers you sell are a standardized commodity; stores view your hammers as identical to those available from hundreds of other firms).You are concerned about two events you recently learned through trade publication:

1) The overall market supply of hammers decreased by 2 percent, due to the exit by foreign competitors,
2) Due to a growing U.S. economy, the overall market demand for hammers will increase by 2 percent.

Based on this information, should you plan to increase or decrease your production of nails? Explain. (Directions: use the graphical presentation of the changes in the market for hammers and the impact of these changes on your firm's output)

Please somehow attach a graphical representation with the solution - perhaps in Excel? Thank you in advance for your help.

Purchase this Solution
Solution Summary

The following solution outlines how a firm makes production decisions to maximize profit by setting MR=MC. Given expected changes in demand and supply, I demonstrate how the firms output will be affected.

Solution Preview

Please see attached file for fully formatted explanation with graphs.
-------------------------------------------------------------------------------
Given that your firm is one of many producing identical goods your market is likely characterized as perfectly ...

Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Important Information About Supply and Demand Changes

    The solution evaluates supply and demand changes in 189 words.

  • Market demand and market supply

    Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility? (a.)

  • Causes of the Changes in Supply and Demand in the Simulation

    263273 Supply and Demand A. What causes the changes in supply and demand in the simulation? b. How do shifts in supply and demand affect your decision making? c. List four key points from that were emphasized in the simulation. d.

  • assumed market structure

    Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production decrease. What new decisions will you make regarding production levels and pricing for your Widget facility?

  • Demand Elasticity

    Now, suppose that following the supply and demand changes, in (a). a substitute good goes up in price, and your costs of production decrease. What new decisions will you make regarding production levels and pricing for your Widget facility?

  • Public/Private Decisions Price Levels and Supply/Demand

    The change in supply can be caused by changes in the cost of raw materials, efficiency of production, improved productivity, changes in weather/climate, and changes in technology.

  • Supply and demand analysis of price change of product

    561645 Supply and demand analysis of price change of product a. Use demand and supply analysis to illustrate the changes in chicken prices described in the article. b.

  • Widget production decision

    (b) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase.

  • Economics

    Demand is the amount of a product that consumers are willing to buy at a given price and supply is the amount of goods that the producers are willing to supply at a given price.

View More Related Solutions