Suppose that nails are elastically supplied to the home construction industry; there are lots of nail producers, and it is easy to increase or decrease production. In a given city, there are only two major home builders, but many home buyers. Home supply is highly inelastic at current supply levels. A large increase in new home demand occurs.

Do you think home builders will benefit? A lot? Explain, using the relevant facts from the problem.

Do you think nail producers will benefit? A lot? Explain.

Q4. the text notes that marginal cost must be increasing for there to be a profit-maximizing quantity. Is this always true or is there something in the set-up of this section that requires this? Brief explanation.