Question

You are the manager of PC solutions that manufactures PCs that are sold as clones. Computer manufacturing includes installing chips in the computers. Assume that there is a decrease in chip production and use a graph to explain how this would affect the market for PCs. Explain if you would hire more labor given that the company grew by 50 percent last year.

Answer 1

The manager experiences that there is a decrease in chip production. Since the manufacturing of PCs involve chips which are now expensive due to reduced supply, the cost of production is likely to increase. This will decrease the supply of PCs. The supply curve shifts to the left and price of PCs will rise. At the same time, the quantity sold is decreased. Since PCs are produced less, we would hire less labor irrespective of what the firm has earned last year