You are the manager of a small U.S. firm that sells nails in a competitive U,S.

Question

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; store view your nails as identical to those available from hundreds of other firms). You are concerned about two events you recently learned about though trade publications: (1) the overall market supply of nails will decrease by 2 percent, due to exit by foreign competitors; (2) due to growing U.S. economy, the overall market demand for nails will increase by 2 percent. Based on this information should you plan to increase or decrease your production on nails? Explain.

Explanation / Answer

You should increase your production of nails. 1) Since the overall market supply of nails will decrease worldwide, the demand will increase with the reduced supply. Simple supply and demand. 2) An increased need of nails in the U.S. also provides the reason to increase production. Again supply and demand.

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