TCOs A and D) Suppose you are hired to manage a small manufacturing facility that produces Widgets. (30 points)
(Part A) You know that you are operating in a monopolistically
competitive market, that is, you are a small part of a large market with
many competitors in this market. From data collected on the Widget
Market, you know that market demand has recently decreased and market
supply has recently decreased. Name two shift factors/determinants that
could have caused the market demand to decrease and two shift factors
and determinants that could have caused the market supply to decrease.
Also as manager of the facility, what decisions should you make
regarding production levels and pricing for your Widget facility? (15
points)
Remember that supply and demand are about the market supply and market
demand, which is much bigger than your own company. You are being given
data on supply and demand for the whole market and are being asked what
effect that has on you as a small part of that market. You want to
identify the possible change in market equilibrium price and possible
change in market equilibrium quantity based on the shifts in demand and
supply and adjust your own price and quantity to match the market.
(Part B) Now, suppose that the following changes in demand and supply
occur: (1) a complimentary good goes down in price and (2) your costs of
production decrease. What decisions will you make regarding production
levels and pricing for your Widget facility based ONLY on these changes,
for example, do not factor in the changes in part (a) here?
