Problem 1) Suppose you are hired to manage a small manufacturing facility which produces Widgets.
a. You know from data collected on the Widget Market that market demand has recently increased and market supply has recently decreased. As manager of the facility what decisions should you make regarding production levels and pricing for you Widget facility?
b. 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?
Problem 2) Here is some data on the demand for marshmallows:
|
Price
|
Quantity
|
|
$10
|
100
|
|
$8
|
300
|
|
$6
|
700
|
|
$4
|
1300
|
|
$2
|
2200
|
a. Is demand elastic or inelastic in the $6-$8 price range? How do you know?
b. If the table represents the demand faced by a monopoly firm, then what is the firm’s marginal revenue as it increases output from 1300 Units to 2200 units? Show all work.