Explain and demonstrate the relationship between supply and demand for Mrs. Acres Homemade Pies.
Shelly can supply 2000 pies each month for $4.5 each, netting $1.5 profit per pie with three part-time employees, however the demand is higher than what she can do, so eventually Shelly expanded her operations, borrowing money and increasing staff to four full-time employees. The production time increase to 8000 pies per month with profit soared to $12,000 per month.
As per the chart showed within only six months the demands increased 4 times, and it promises to increase more in the next quarter. It brings challenges to ...view middle of the document...
Or another case when she increase the price then she cannot competitive with others. On the second option, It’s seem reasonable one because when the demand increase that means the all buyer are willing to buy at this price and other new market share also accept this price then we should expand facility and staff to adapt the market’s requirement. On the third option it is a good idea to contract the production to a national restaurant chain to make it popular for everyone and Shelly can has a percentage of profits with minimal involvement. However with the current company’s level is quite small to make a mark on the market then it hard to convince any national restaurant chain to do this, and with the current price her net profit will be decrease a lot, another case may coming is national restaurant can become her competitive on this market.
In my opinion, Shelly should choose the second option to expand the facility and staff while maintaining the current price, it will help her to keep and expand the market share. When she have a name on the market then she can consider on the price raising to segment the market and this is time she should consider applying the third option.