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You are the manager of a midsize company that assembles personal computers
You are the manager of a midsize company that assembles personal computers. You purchase most of the components on a competitive market. Based on your research, customers that make more than $80,000 per year are more likely to buy 1.5 more components for their PCs. You pick up the Wall Street Journal, which states that component parts for PCs are expected to rise, which will cause the price of component parts to increase. Based on this, what can you expect to happen to the components you sell?
Expert Solution
If the cost of the component parts of the PCs is expected to rise, the total cost of production will increase. An increase in the total cost implies that the per-unit cost or the average cost of production will rise. An increase in the average cost implies that the firm will need to increase the price of their final output so as to maintain its profitability and production feasibility.
The law of demand states that the price and quantity demanded of a product is inversely related, ceterus paribus. Any increase in the price of components passed on to the consumer would lead to a fall in the final demand of components by the consumer, irrespective of the level of consumer income and their respective expenditure on the components.
Therefore, an increase in the price would lead to a fall in the company's sales of the component.
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