Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 4

You are the manager of a small U.S. finn 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 publica­tions: (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 over­all market demand for nails will increase by 2 percent. Based on this infonnation, should you plan to increase or decrease your production of nails? Explain.