(a) The price in the market for this perfectly competitive from when p1, the firm would desire to sell over a hundred units. This is because the prices of single units would have gone down. The firm would sell more units with a tiny profit margin on each unit to make profits. The firm will then sell more units so that it can accumulate more profits and be able to stay in the business. Economically, the firm would not be making tangible profits because the margin on each unit is very small. If the firm does not have other products it is selling at a profit, it will have to spend a good fraction of its revenue on every unit on settling bills. The difference between P2-P1 is very small and a company that aspires to grow cannot operate on such margin (Interactive Graph 2012).
b) If the price in the market for this perfectly competitive were P2, the firm would desire to sell less than a hundred units. The firm would be doing this to reduce supply of units in the market. This limited in supply would trigger an increase in prices of each unit in the market. This would make the firm to make more profits on single units. The profits would also increase because the cost of production on fewer units is low; this subtracted from the selling price would highly increase the profits of the company. The firm would make economic profits as long as consumers are not able to find substitutes of the same unit in the market or if competitors do not come up with cheaper alternatives.
c) If the price in the market for this perfectly competitive firm were P3, the firm would desire to sell less than units. This is because the profit margin is very high and the company can operate effectively on that profit margin. However there would be scarcity in the market and this could make potential customers close their business because the cost o production would be high. However, as much as it makes economic sense, it is not be a good strategy in a free market economy.
d) If the price in the market for this perfectly competitive firm were P4, the firm would be willing to sell as many units as possible. The firm would be targeting to supply all its customers as well as increase customer loyalty. Once this is achieved, the firm would stabilize and would require less money for advertising. The reason for this is less money spent on expenses including advertising and exploiting economies of scale.
e) If the price in the market for this perfectly competitive firm were P5, the firm would be willing to sell any units. This is because the increased cost of production would lead to higher prices of the final product and customers would easily look for alternatives in the market. This does not make economic profits for the firm because it fails to take advantage of economies of scale.
References:
Interactive Graph (2012) Thinkeconomics Site: Http://Www.Whitenova.Com/Thinkeconomics/Profit.Html
Holman W. J. (2012) What’s Right with Gas Price? , Wall Street Journal. A.13.
Pascal Z. (2012) Big Business: Play Oligopoly!Why Giants Like Having Other Giants Around. Wall Street Journal. C.1
Richard B.M.(2010) Taste: Popping Mad? Sit Down and Watch The Movie, Wall Street Journal C.22
