Economics I
December 08, 2007
ROUND 1
I decided to produce seven (7) units based on the initial guidance of requiring less than 20 units being produced. The guidance also stated that in past production cycles I produced between 1-10 units. The next factor was the Market Research and the composition of a total of six companies that manufacture the same product. This led me to determine that the market demand forecast would be between $50K and $100K per unit considering all six companies. Upon selecting the total number of units seven and the other companies populated with lesser units I determined that I would receive the larger market share overall.
My production costs per unit is $25K x 7 units = $175K, the total number of units sold 7 multiplied by the Market demand price $50K = $350K. Based on the $350K - $175K = $175K profit over my operating costs. In discussing the relationship between demand and pricing to the units supplied provides a direct relationship to the cost of supply and demand. This law states a direct relationship of quality demanded of the merchandise and price per unit.
Per the parameters of the problem (Round 1), based on Market Demand Forecast and past production and sales are realized if production increases one will have a surplus of product. If one supply's 10 units the base forecast for all six companies totaled 27 units. Based on the Actual Market Demand using the total market supply the price will be approximately $30K per unit, a reduction of $20K from my original $50K. This provided revenue of $270K - $250K = $20K profit therefore providing a poor overall margin of success.
In the reverse, when producing 5 units at $25K the total produ ...