Monster Bicycle Manufacturing Company

QUESTION

Monster Bicycle Manufacturing Company1234 Ghoul Rd.Underbed, FL 34567Federated Regulated Economic Associated ConsultantsEquilibrium StreetPort Richey, FL 34666Dear Federated Regulated Economic Associated Consultants (FREAC),My firm produces bicycles. The market price for the bicycles is currently $500, and we have beenproducing 13 bicycles per week. I don’t believe that my firm could be doing any better producing any otherlevel of output (we are currently breaking even).1. I would like for FREAC to look into our production choices and give us its expert opinion as towhether we could improve our weekly profit (see the attached cost schedule). Please include theappropriate graphs in your discussion.2. Make a supply schedule for my firm by filling out the table below (assume that only wholebicycles can be produced — 9 or 10, not 9.374). What quantity of bicycles should we supply at amarket price of $200, $250, $300, $350, $400, $450, $500, $550, and $600 if we want tomaximize profits.Price $200 $250 $300 $350 $400 $450 $500 $550 $600Firm Qs (per week)Our market analysts believe that the demand for bicycles may fall in the near future. Currently, there are100 firms in the industry that are identical to ours (which means each firm’s supply decision is the same).We predict that, within our short run time frame, market demand will fall to the level indicated by the tablebelow.Price $200 $250 $300 $350 $400 $450 $500 $550 $600Market Qd (per week) 1800 1600 1400 1200 1000 800 600 400 200Market Qs (per week)3. What will the new equilibrium market price be if demand falls? Given that new price, how shouldwe react to maximize profit in the short run and the long run? Discuss.4. Discuss the long run adjustment in the industry. That is, how will the number of firms, marketsupply, and profitability change as the industry moves toward a new equilibrium (illustratediscussion with the appropriate graphs)?Please type up a report for us in which you provide an analysis of our situation and discuss the answers toall our questions by the time of our meeting on __(due date)_____. Your payment (grade) will bedetermined not only by your correctness, but also by the quality of your writing.Sincerely,I. M. Scary, PresidentMonster Bicycle Manufacturing CompanyThe Monster Bicycle Manufacturing Company sells bicycles in a perfectly competitive market for $500.As part of the project, complete the following table.Note: Columns 2, 3, 4, and 12 of the table are price specific, meaning if you fill in the table whileassuming a market price of $500, columns 2, 3, 4, and 12 will only be valid as long as the market pricedoes not change. Of course, the cost information in columns 5-11 will not be affected by a price change.1 2 3 4 5 6 7 8 9 10 11 12QTotalRevenueTR=P*QMarginalRevenue,TR/ Q,AverageRevenue,TR/QTFC TVC TC MC AFC AVC ATCProfit,=TR-TC0 0 20001 2000 500 2500 500 2000 25002 800 300 1000 400 14003 1000 3000 667 333 10004 1160 3160 160 500 290 7905 1340 3340 180 400 268 6686 3540 200 257 5907 1780 3780 286 2548 2080 4080 300 250 5109 2410 330 222 268 49010 2770 4770 360 200 277 47711 3190 5190 420 182 290 47212 3760 5760 570 167 313 48013 4500 6500 740 153 346 50014 5500 7500 1000 143 393 536

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