Consider a retail firm that sells fashion accessories including silver-plated bracelets. This firm is one of many firms participating in a highly competitive market for silver-plated bracelets. Currently, the market price for silver-plated bracelets is $30 and the market is in equilibrium. Firms trading in the market and potential entrants have the same cost structure, and the current market quantity is 44,800 silver-plated bracelets. For this retail firm, the cost of labor and materials used in production is described by the equations: AVC = 2 + 0.05q and MC = 2 + 0.1q. In addition to these costs, the firm faces a cost of $2880 for its machinery and equipment. Now consider that lower input prices led to a change in the supply of leather bracelets, a good consumers see as a substitute for silver-placed bracelets. In the market for leather bracelets, the market price, and quantity of leather bracelets traded changes, and this impacts the competitive market for silver-plated bracelets. As a result of this shock, the market for silver-plated bracelets adjusts in the short run. As a result of this market shock, and given that the current market price is $28 or $30 or $32, the firm's short-run profit at its profit-maximizing quantity is

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter9: Market Structure And Long-run Equilibrium

Section: Chapter Questions

Problem 2MC

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Consider a retail firm that sells fashion accessories including silver-plated bracelets. This firm is one of many firms participating in a highly competitive market for silver-plated bracelets. Currently, the market price for silver-plated bracelets is $30 and the market is in equilibrium. Firms trading in the market and potential entrants have the same cost structure, and the current market quantity is 44,800 silver-plated bracelets. For this retail firm, the cost of labor and materials used in production is described by the equations: AVC = 2 + 0.05q and MC = 2 + 0.1q. In addition to these costs, the firm faces a cost of $2880 for its machinery and equipment.

Now consider that lower input prices led to a change in the supply of leather bracelets, a good consumers see as a substitute for silver-placed bracelets. In the market for leather bracelets, the market price, and quantity of leather bracelets traded changes, and this impacts the competitive market for silver-plated bracelets. As a result of this shock, the market for silver-plated bracelets adjusts in the short run.

As a result of this market shock, and given that the current market price is $28 or $30 or $32, the firm's short-run profit at its profit-maximizing quantity is

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