Micro

After completing the cost schedule given to Economics Consultants by the Bicycle Producer I have been able to analyze the production choices. At the same time where the company produces no bicycles it still incurs with expenses of $2,000.00 represented by fixed cost (FC=TC-VC) or (FC=2000-0 thus $2000.00). As the firm produces more goods it will be capable to increase its total revenue(TR=P*Q). On the other hand, total cost also increases. The firm must undertake actions and make the decisions that increase profit. Through this process the company obtains the highest possible level of profit through the right level of production and sale of the goods. In order to do so an analysis of the production choices must be done.

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First of all, the current production plan at13 bicycles is not efficient since it yields no profit as the firm breaks even. In other words, profits are high enough to cover all the cost incurred in the processing of the goods, algebraically, (Profits= TR-TC) or (Profits= 6500-6500 thus $0.00). Furthermore, the production plan from 0 units up to 8 units also yields no profits as they actually result in losses for the firm. This isexemplified with red numbers in the profit-max column in the cost schedule sheet. However, it is important to notice that as production increases this losses decrease. As a result, the production levels between producing 9 to 12 bicycles yields profits; $130.00, $260.00, $230.00 and $130.00 respectively. The best allocation of the resources happens when you as the producer build 10 bicycles, due to thefact that at this level weekly profit is $260.00. This is shown by the short run schedule graph were ATC lays bellow or is less then MR. The profit is viewed as the shaded are in this graph. Profit is calculated by Profit= (MR-ATC)*Q or Profit= [(500-474)*10 thus $260.00]. If you were to manufacture an extra bicycle your firm will be earning less profit -although not at the ideal point- untilproducing 13 units were the firm will be falling into the break-even point.

As the prices of bicycles may change in the market the firm will still be competent to provide customers with their needs. We need to consider that bicycles can only be produced and sold as an entire unit. In the hypothetical case that the market set prices as shown in the table bellow the firm will produce at the nextlevels.

|Price |$200.00 |$250.00 |$300.00 |$350.00 |$400.00 |$500.00 |$600.00 |
|Quantity |3 |5 |7 |9 |10 |11 |12 |

The quantities being produced are determined by the MC relation with the quantities given by the cost schedulesheet. In the short run the firm’s supply curve is represented by MC above AVC. In order to find the quantities at which the firm will produce at each market set price, a value matching the price will be located at the MC column and then related to the quantity being produced at that level. As the price is set to $400.00 and 500.00 an approximation has being done in order to establish a number ofquantities to the respective prices. Since $400.00 is closer to $370.00 a quantity of 10 has being assigned to it, whereas $500.00 is near to $530.00 a quantity of 11 units has being allocated. Simply, quantity supplied is based on MC.

For the next analysis I assume that there is a perfect competitive market since is the market the one that imposes the prices and not the firms. Your firm isa price taker since it has to adapt to the prices dictated by the market. It is important to that the market is composed by 100 firms identical to yours. In another words, each firm’s supply decision is the same, once again a perfect competitive market aspect.

Market analysts believe that the demand for bicycles may fall in the near future. As a result, it is predicted that the market...