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Business & Marketing
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Case Study
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English (U.S.)
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Topic:

Marginal Analysis and The Theories of Supply and Demand and Market Equilibrium

Case Study Instructions:

Unit II Case Study
Review the following case study and answer the questions that are provided. Provide a complete and detailed response. The purpose of the case study is for you to express your knowledge of concepts and theories of managerial economics learned in chapters 2 and 3 of the text and the assigned readings. 
Best Homes Inc., a real estate company, has two sources of income. The first is from rental properties and the second is from sales of new construction. The company makes $18,000 on each new construction home with a projection of 20 homes in 2017. Rentals are projected to add approximately $25,000, which is almost the amount of fixed costs of operation for the same period. Variable costs are unknown.
Respond to the following questions:
1. Based on your knowledge of marginal analysis, what should the company do to earn optimal income?
2. At what point should it discontinue operation?
3. Explain the theories of supply and demand and market equilibrium and how they apply to this case.
4. Discuss marginal revenue and marginal cost as applied to this case.
5. How would the market forces of demand and supply determine the company’s profit maximization?
Your response must be a minimum of two pages in length. You are required to use at least your textbook Samuelson, W.F., & Marks, S.G. (2015). Managerial Economics (8th Ed.). Hoboken, NJ: Wiley. as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. All citations should be in APA format, and your paper should be formatted in accordance to APA style.

Case Study Sample Content Preview:

Case Study
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1. Based on your knowledge of marginal analysis, what should the company do to earn optimal income?
After reviewing this case study, I got to know that Best Homes Inc. depends on two sources of income: sales of new homes and rental properties. We know that the company’s variable costs are not known (Samuelson & Marks, 2015, p. 53). If these costs remain unknown, then the marginal cost will also remain unknown, meaning the company should continue its production until the marginal revenue is more than marginal cost. It can earn optimal income only if it keeps the balance between production and sale maintained, and does not let the marginal cost go below $18,000 (Samuelson & Marks, 2015).
2. At what point should it discontinue operation?
The company can discontinue its operation when the rentals begin adding over $25,000 to its profit. That will be the time when no new construction would be needed, and the company can depend on rentals for its survival (Rubin & Dnes, 2010).
3. Explain the theories of supply and demand and market equilibrium and how they apply to this case.
The interaction between producers and consumers in the competitive market can determine demand and supply equilibrium. Sometimes the market forces significantly drop the price of a particular product, and this is when Best Homes Inc. can either consider reducing its prices of newly constructed homes or interact with clients directly to resolve the issue. When the company will keep increasing the price without bringing the matter to the consumers’ notice, it may soon lose its reputation because the demand of its products will be less than its production (Samuelson & Marks, 2015, p. 57). By keeping the price of every home t...
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