Question 1: Demand and Supply
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 and market supply have both increased recently.
As manager of the facility what decisions should you make regarding production levels and pricing for your 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 increase. What new decisions will you make regarding production levels and pricing for your Widget facility?
Question 2. Elasticity and Marginal Revenue
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 $4-$6 price range? How do you know?
b. If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 100 units to 300 units? Show all work.