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Part A

College Computers manufacturers computer models that specifically address the needs of

university students from local areas. Alternative firms compete with College Computers within

the marketplace either through online sales channels or using traditional retail networks. College

Computers stands out by offering students free post-sale support, thus creating strong student

loyalty. This section establishes how to find both the most profitable price and output level for

the firm. College Computers will also need to implement adjustment strategies for long-term

market changes affecting its operations.

Profit-Maximizing Output and Price

its profit-maximizing price and output solution. The relationship between MC and MR is

essential for identifying the profit maximization point.

Total revenue
TR=PQ

800−Q
P=
2

( )
2
800−Q 800 Q−Q
TR= ∗Q=( )
2 2

Marginal revenue

MR= ( dQ )
d ( TR )
=d /dQ (
800 Q−Q 2
2
)

800−2 Q
MR=( )
2

Total cost
d (C (Q ) ) d
MC= = ∗( 1200+ 2Q ) =2
dQ dQ
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Profit maximization
MR=MC

( 800−2Q
2 )=2
Q=398

P=¿

P=$201

The profit maximizing quantity and profit is 398 and $201, respectively. The profit

maximization point is that at which the marginal revenue equals to the marginal cost. College

Computers operates at an optimal level and maximizes profits by selling 398 units each at $201.

Long-Run Adjustments
College Computers needs to transform its operations to match the competitive dynamic

environment. The price of $201 is lower than the industry price of $300, so the company may

attract more customers but will face difficulties covering its fixed costs over the long term. The

price difference between College Computers and its industry rivals will lead competitors to

either lower prices or leave the market. The computer manufacturing industry will experience

new market entry due to the existing profit incentives, which would result in additional price

reductions by competitors (Barro, 1972). The firm needs to decide between lowering its expenses

and differentiate its products from competitors through technological advancements or extended

service and warranty options.

Part B

Introduction

This section evaluates the behavior of a U.S. business that produces nails in a competitive

market environment. The two principal market changes affecting the firm consist of a reduced
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nail supply by 2% across the market and an enhanced market demand by 2% due to U.S.

economic growth. The firm should adjust its nail production accordingly based on these market

changes.

Impact of Market Changes

The supply curve for nails will experience leftward movement when the supply decreases

by 2%. The price equilibrium becomes higher due to this market shift if demand levels stay

stable. Reduced competition and higher nail costs will benefit the firm.

Market demand gets positively affected when it increases by 2% which causes a

rightward shift of the curve. The market equilibrium quantity will rise and subsequently cause

the equilibrium prices to increase.

The market displays the following effects when supply decreases while demand increases

simultaneously. Higher prices will occur because of the reduced nail quantity supply in the

market, as per demand and supply dynamics. Prices increase when consumers compete for the

limited nail supply in the market. Spurred by rising market demand, the price level will increase

further from the previous price levels which will attract more suppliers to supply nails in the

market. The two market forces result in both price increase and an increase in market equilibrium

quantity. The effect of the exit of foreign competitors which causes declining supply will be

counteracted by the growing demand that will cause prices to rise from the initial levels, attract

more suppliers, and thus leading to an increase in the equilibrium quantity.

Decision on Production

Because prices have risen while product demand has increased, the firm would find it

beneficial to expand its production level. One benefit of the higher market price is that it
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generates higher revenue per unit, Also, the increased demand implies that the firm can sell more

unit sales at the elevated price. The business should boost its production capacity to handle

growing market demand and capture consumer surplus at the elevated price. The changes on

equilibrium price and quantity are evaluated using demand and supply functions. Because of the

2% shifts, the firm should boost its production levels. When market forces entail supply

reduction and demand surges, both favor producers' profitability, so the firm needs to optimize

production volumes (Fernandez et al., 2022).

Conclusion

To reach maximum profits, College Computers should produce 398 computers as the

optimal quantity while setting each unit at $201. The company needs to examine future

adjustments to its pricing strategy and cost structure to maintain competitive standing. The nail

production firm should raise output levels because supply and demand modifications of 2% will

boost prices and improve sales volume.

References

Barro, R.J. (1972). A theory of monopolistic price adjustment. The Review of Economic Studies,

39(1), 17-26. https://doi.org/10.2307/2296440

Fernandez, E., Lopez-Lopez, V., Jardon, C.M., & Iglesias-Antelo, S. (2022). A firm-industry

analysis of services versus manufacturing. European Research on Management and

Business Economics, 28(1). https://doi.org/10.1016/j.iedeen.2021.100181