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Price

Price

MC ATC

Pe

D=MR=AR

D Q Quantity Q Quantity

The graph above shows the equilibrium price and quantity that the nail firm is currently producing. When the other foreign firms left the market, the total supply of nails in the market will decrease. This means that firms that remain in the Chinese nail market would have to increase their production. At the same time, because of the countrys growing economy, the demand of nails increases. Price M C

ATC D=MR=AR D=MR=AR

P P

Quantity

When the demand increases, all the firms in the market will increase their prices until a market price is set. When this happens, the quantity that the firm is producing is no longer efficient since their new MC is barely higher than MR. So if the firm wants to reach the profit maximizing point, they would have to increase their production to a quantity where the new MR curve intercepts MC.

Price

MC ATC

P P

D=MR=AR D=MR=AR

Q Q

Quantity

The firms profit is maximized when the production is increased to Q so I would increase the production of nails.