Welcome to the Final Project for this course. In this project, you will use the skills that you have developed throughout the course to answer the questions.
In this project, you take on the role as a member of the Federated Regulated Economic Associated Consultants (FREAC). One of your jobs at this firm is to consult with businesses to help them improve their bottom line.
Directions:
- Read the Letter below
- Monster Bicycle Manufacturing Company – Click Here to Download
- Using information presented in the course:
- Write a letter in response to Monster Bicycle’s Manufacturing Company (MBMC)
- In the letter, answer the 4 questions posed by MBMC using the information from this course as well as the information provided by MBMC in their letter
- As part of your response, you will need to include graphs displaying your information – these graphs can be done by hand, just remember to make them neat and legible
- Include a cover page with your name, date and section number.
Monster Bicycle Manufacturing Company
1234 Ghoul Rd.
Underbed, FL 34567
Federated Regulated Economic Associated Consultants
Equilibrium Street
Port Richey, FL 34666
Dear Federated Regulated Economic Associated Consultants (FREAC),
My firm produces bicycles. The market price for the bicycles is currently $500, and we have been
producing 13 bicycles per week. I don't believe that my firm could be doing any better producing any other
level 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 to
whether we could improve our weekly profit (see the attached cost schedule). Please include the
appropriate graphs in your discussion.
2.
Make a supply schedule for my firm by filling out the table below (assume that only whole
bicycles can be produced — 9 or 10, not 9.374). What quantity of bicycles should we supply at a
market price of $200, $250, $300, $350, $400, $450, $500, $550, and $600 if we want to
maximize profits.
Price
$200
$250
$300
$350
$400
$450
$500
$550
$600
Firm Qs (per week)
Our market analysts believe that the demand for bicycles may fall in the near future. Currently, there are
100 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 table
below.
Price
$200
$250
$300
$350
$400
$450
$500
$550
$600
Market Qd (per week)
1800
1600
1400
1200
1000
800
600
400
200
Market Qs (per week)
3.
What will the new equilibrium market price be if demand falls? Given that new price, how should
we 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, market
supply, and profitability change as the industry moves toward a new equilibrium (illustrate
discussion with the appropriate graphs)?
Please type up a report for us in which you provide an analysis of our situation and discuss the answers to
all our questions by the time of our meeting on __(due date)_____. Your payment (grade) will be
determined not only by your correctness, but also by the quality of your writing.
Sincerely,
I. M. Scary, President
Monster Bicycle Manufacturing Company
The 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 while
assuming a market price of $500, columns 2, 3, 4, and 12 will only be valid as long as the market price
does 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
12
Q
Total
Revenue
TR=P*Q
Marginal
Revenue,
TR/ Q,
Average
Revenue,
TR/Q
TFC
TVC
TC
MC
AFC
AVC
ATC
Profit,
=
TR-TC
0
2000
500
2500
500
2000
300
1000
400
1400
667
333
1000
0
1
2000
2500
2
800
3
1000
3000
4
1160
3160
160
500
290
790
5
1340
3340
180
400
268
668
3540
200
257
590
6
7
1780
3780
8
2080
4080
9
2410
10
2770
11
286
254
300
250
510
330
222
268
490
4770
360
200
277
477
3190
5190
420
182
290
472
12
3760
5760
570
167
313
480
13
4500
6500
740
153
346
500
14
5500
7500
1000
143
393
536