Pie the Supply and Demand Essay

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Each of these different options would have more complex influence on price, supply, and demand in the long-term. Keeping production at its current level, while leading to a short-term price increase, would eventually cut the demand for Mrs. Acres' pies; in a "perfect" world, the price would increase until the demand reached current supply levels (i.e. eight thousand pies per month). Increasing production without raising the price would eventually allow supply to meet demand, but the overhead costs will increase and profits-per-pie will be reduced, eventually leading to a price increase and a cut in demand at uncertain levels. Similar results would come from passing on production, though Mrs. Acres would be insulated from uncertainties.

The reason that supply, demand, and price will not remain consistent over both the short- and long-term is that the company is quite obviously in a period of transition, and as with any transition there are both some risks and some uncertainties involved. Any expansion effort would be based on an uncertain projection of the true demand, as there is no way to measure the true demand for Mrs. Acres' pies as of yet -- the demand has never been reached, and sales appear to have almost instantly reached the company's production capacity.

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The same uncertainty exists for increasing the price and keeping production at the same level; while there is definitely room for a price increase, it is unclear when the eventual drop in demand would occur, and whether a solid equilibrium could be found in the supply capabilities and what people are willing to pay for a relatively cheap consumable commodity like a pie. Whatever choice Mrs. Acres makes, changes are certain to occur over the short-term that will eventually, but not instantly or even necessarily quickly, lead to a new long-term equilibrium.

The safest yet probably least profitable option for Mrs. Acres would be to let another firm handle production -- relatively minimal overhead increases for the restaurant chain would keep prices low, enabling massive demand-meeting production at the same price. Simply increasing the price could greatly increase Mrs. Acres' profits, but it is possible that a price limit would be reached before demand is truly met. The best option would be for Mrs. Acres to increase production capabilities and incrementally increase the price, maximizing profits by maximizing her ability to meet demand at a new price….....

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