Microeconomics- Monster Bicycle Manufacturing

| 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)

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