1. Suppose you are hired to manage a small manufacturing facility that produces

Question

1. Suppose you are hired to manage a small manufacturing facility that produces Widgets.

(a.) 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?

NOTE: 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.) 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?

Explanation / Answer

(a) I would decrease production levels and increase the price of the commodity because even though it is the market demand and supply that we are talking about it is still likely to affect the company. (b) i would decrease the price of the commodity because only then people would buy the commodity produced by me instead of the substitute good(whose price has also decreased)

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