Question

12. You are the manager of a small U.S. firm that sells nails in a competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundreds of other firms). You are concerned about two events you recently learned about through trade publica- tions: (1) the overall market supply of nails will decrease by 2 percent, due to exit by foreign competitors; and (2) due to a growing U.S. economy, the over- all market demand for nails will increase by 2 percent. Based on this informa- igphunoad you phantorr ourprodcion df ali? Explain.

Answer 1

As the foreign suppliers have withdrawn from the market and the supply has decreased by 2% it will increase the price of the nails in the market and our firm will be making a profit at the current output level.

The demand of nails in the market is also going to increase. as the price has already increased due to exit of the foreign supplier and the demand is high the firm should increase the production in the short run.

Higher demand and lower supply will increase the price and to make a profit in the perfectly competitive market the firm should increase the production in the market that will increase the profit of the firm. the more the firm can produce at the given price in the market the more profit they will make.