ASSIGNMENT #1 ECONOMIC AND ETHICAL ISSUE
This document presents an analysis of two case studies. Our first case study on hand, talks about the situation experienced by Mrs. Acres Homemade Pies. The company produces specialty pies and sells them to local supermarkets. In the past, they sold 2,000 pies for $4.50 each, netting $1.50 profit per pie for the first six months. To meet demand, production and sales increased to 8,000 pies per month, with profits of $12,000. Demand for Mrs. Acres Homemade Pies continues to accelerate beyond what they can supply. The second discusses monopolistic competition of a soft drink business.
Supply, Demand and Price of the Product in the Short-Term.
Since the number of buyers has increased from 2,000 to 8,000, there is evidence of an increasing in demand for the pies. It is said that the demand will continue to accelerate beyond what they can supply. Shelly Acres has just expanded operations, increasing the number of employees from three part-time to four full time employees. Instead of expanding the facility and staff, she could maintain current production levels and raise the price of individual pies. By increasing the pies, there is a possibility of profit but on the other hand there is a risk of decreasing in demand. She needs to do a trial and error or doing a market research for the maximum price for each pie until she finds a new equilibrium.
Figure 1. Right shift of demand
Supply, Demand and Price of the Product in the Long-Term.
According to McConnel (2010) “In any specific time period, each buyer of a product will derive less satisfaction from each successive unit of product consumed” (p. 46). Overtime, with many factors involved (such as competition and customer changing expectation) demand will decrease. It is important therefore, that Mrs. Acres to start thinking about the diversity of her products. That is, to produce more product options for consumers. Since demand may decrease over the...