Final Econ Exam Keller

1. (TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.

(a.) (15 points) You know from data collected on the Widget Market that market demand has recently decreased and market supply has recently increased. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility? Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market. (b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes down in price, and your costs of production decrease. What new decisions will you make regarding production levels and pricing for your Widget facility

a.) If you have supply increase and a demand decrease at the same time, then the price is going to go down and the quantity is going to go up. If I were to make the decision as to where the company would go based on this information I think we should cut back on our production, because we will soon run out of funding on the quantity. b.) If our substitute product introduces a lower price and our production cost goes down we would want to make as much of the product as possible, until we hit a place where the profit is staling. Then we would want to shut down production of the product until the demand of the product is high enough, so we can produce an ample amount of the product without having to worry about the competition of the substitute good.

2. (TCO B) Here is some data on the demand for marshmallows:

Price $10 $8 $6 $4 $2

Quantity 100 300 700 1300 2200

(a.) (15 points) Is demand elastic or inelastic in the $6-$8 price range? How do you know? (b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as...