micro economics final project

micro economics final project

Monster Bicycle Manufacturing Company
1234 Ghoul Rd.
Underbed, FL 34567
Federated Regulated Economic Associated Consultants
Equilibrium Street
Port Richey, FL 34666
Dear Federated Regulated Economic Associated Consultants (FREAC),
My firm produces bicycles. The market price for the bicycles is currently $500, and we have been
producing 13 bicycles per week. I don’t believe that my firm could be doing any better producing any other
level of output (we are currently breaking even).
1. I would like for FREAC to look into our production choices and give us its expert opinion as to
whether we could improve our weekly profit (see the attached cost schedule). Please include the
appropriate graphs in your discussion.
2. Make a supply schedule for my firm by filling out the table below (assume that only whole
bicycles can be produced — 9 or 10, not 9.374). What quantity of bicycles should we supply at a
market price of $200, $250, $300, $350, $400, $450, $500, $550, and $600 if we want to
maximize profits.
Price $200 $250 $300 $350 $400 $450 $500 $550 $600
Firm Qs (per week)
Our market analysts believe that the demand for bicycles may fall in the near future. Currently, there are
100 firms in the industry that are identical to ours (which means each firm’s supply decision is the same).
We predict that, within our short run time frame, market demand will fall to the level indicated by the table
below.
Price $200 $250 $300 $350 $400 $450 $500 $550 $600
Market Qd (per week) 1800 1600 1400 1200 1000 800 600 400 200
Market Qs (per week)
3. What will the new equilibrium market price be if demand falls? Given that new price, how should
we react to maximize profit in the short run and the long run? Discuss.
4. Discuss the long run adjustment in the industry. That is, how will the number of firms, market
supply, and profitability change as the industry moves toward a new equilibrium (illustrate
discussion with the appropriate graphs)?
Please type up a report for us in which you provide an analysis of our situation and discuss the answers to
all our questions by the time of our meeting on __(due date)_____. Your payment (grade) will be
determined not only by your correctness, but also by the quality of your writing.
Sincerely,
I. M. Scary, President
Monster Bicycle Manufacturing Company
The Monster Bicycle Manufacturing Company sells bicycles in a perfectly competitive market for $500.
As part of the project, complete the following table.
Note: Columns 2, 3, 4, and 12 of the table are price specific, meaning if you fill in the table while
assuming a market price of $500, columns 2, 3, 4, and 12 will only be valid as long as the market price
does not change. Of course, the cost information in columns 5-11 will not be affected by a price change.
1 2 3 4 5 6 7 8 9 10 11 12
Q
Total
Revenue
TR=P*Q
Marginal
Revenue,
TR/ Q,
Average
Revenue,
TR/Q
TFC TVC TC MC AFC AVC ATC
Profit,
=
TR-TC
0 0 2000
1 2000 500 2500 500 2000 2500
2 800 300 1000 400 1400
3 1000 3000 667 333 1000
4 1160 3160 160 500 290 790
5 1340 3340 180 400 268 668
6 3540 200 257 590
7 1780 3780 286 254
8 2080 4080 300 250 510
9 2410 330 222 268 490
10 2770 4770 360 200 277 477
11 3190 5190 420 182 290 472
12 3760 5760 570 167 313 480
13 4500 6500 740 153 346 500
14 5500 7500 1000 143 393 536

 

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