Suppose you are hired to manage a small manufacturing facility that produces a particular product.
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, you know that market demand has recently decreased and market supply has recently decreased.Name two shift factors/determinants that can cause the market demand to decrease and two shift factors/determinants that can cause the market supply to decrease.
Part B) Now, suppose that the following change occurs: a complimentary good goes down in price. What decisions will you make regarding production levels and pricing for your production facility based ONLY on this change (ignore the changes discussed in part a)? Should you increase or decrease production? Should you increase or decrease price?