Suppose That We Are in a Condition of "Stuck" Prices

question 11

Essay

Suppose that we are in a condition of "stuck" prices so that the price of nails will not go above or below $2/kg.Further suppose that nail factories have been built on a business plan designed to deliver 6,000 kg/week.How many nails will be sold in a market in which demand (which includes a modest amount of inventory) is characterized by: (a) P = 5 - 0.5Q, (b) P = 6 - 0.5Q, and (c) P = 4 - 0.5Q, where P is in $/kg and Q is in thousands of kg/week? In each case, what happens to inventory.

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Definitions:

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital, in the production process.

Purely Competitive

Characterizes a market structure where many competitors sell identical products, ensuring no single seller can influence market prices.

Labor Input

Labor input is the amount of work provided by employees or workers, contributing to the production of goods and services within an economy or firm.

Marginal Resource Cost

The increase in total cost incurred by employing one more unit of a resource, such as labor or capital.