economics project

| November 18, 2015

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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