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The paper discusses the three options available to Shelly Acres when she finds herself unable to meet demands of her product, namely, expanding the facilities without raising prices, contracting production to an external source, or maintaining current production levels and raising prices. The paper explains why the smartest move is to raise prices until the supply equates demand.
From the Paper:"The strongest option available to Shelly would be to temporarily increase prices and maintain current production levels. According to the rules of economics, "The law of supply and demand predicts that the price level will move toward the point that equalizes quantities supplied and demanded," (Net NBA 1). Thus, the levels of supply and demand must reach an equilibrium point. By maintaining current levels and increasing prices temporarily, this will create an equal point for supply and demand of Shelly's pies. As demand continues and supplies do not meet that demand, the price of the pies should be raised to help equalize the two within the short term. This may loose some customers upfront, but it is both equaling supply and demand as well as providing the greatest levels of net profit which can then be re-invested in expanding production without borrowing more money. This will then lower demand to a number that the company can handle and allow them to plan for further expansion in the future. After such expansion the price should drop once again because they will be producing more of a supply. Thus, in long term price models, the price per pie will once again be lowered because the company will be more capable of increasing supply."
Sample of Sources Used:
- Henderson, Hubert D. Supply and Demand. Kessinger Publishing. 2004.
- Hirt, Geoffry & Ferrell, Linda. Business: A Changing World. 5th ed. McGraw Hill. 2005.
- NetMBA. "Supply and Demand." Internet Center for Management and Business Administration. 2007. Retrieved 28 Oct 2009 at http://www.netmba.com/econ/micro/supply-demand/
Cite this Case Study:
Supply and Demand in Mrs. Acres Homemade Pies (2012, May 22) Retrieved August 10, 2022, from https://www.academon.com/case-study/supply-and-demand-in-mrs-acres-homemade-pies-151094/
"Supply and Demand in Mrs. Acres Homemade Pies" 22 May 2012. Web. 10 August. 2022. <https://www.academon.com/case-study/supply-and-demand-in-mrs-acres-homemade-pies-151094/>