Shelly is in a bit of a predicament, agreed, but probably Shelly would rather deal with an
almost insatiable demand than little or no growth because there is no revenue. Short term the demand is obviously there as this company can not currently keep up with the request for the product (Ferril, pp. 13-14). Very simply stated; there is scarcity of these pies because there is not a large scale factory able to absorb supply and bring demand to an equilibrium. Short term, before production can bring price points and demand to a level of equality, prices of the pies will go up due to their scarcity.
Discuss what you think will happen to supply, demand and price of the product in the long-term.
All else being held constant, operating under the assumption that Shelly hasn’t vastly altered the ingredients, or that nationally we aren’t by then in some state of economic recovery, Mrs. Acres Homemade Pies should have been able to sustain the growing pains of a new business. It would be a likely supposition that the business model of this company would probably be characterized largely as a monopoly or oligopoly which would be an advantage to Shelly in terms of being in a competitive market. Ideally Shelly will figure out the right formula
to sell the price for the best profitability in the long run, obtaining the price equilibrium long term, everything else held constant. If she raises prices too high, the market won’t respond favorably, which means consumption will go down, then she couldn’t justify or pay for the people, resources, or equipment which are the driving force behind her company.
Explain why you think supply, demand, or equilibrium price will be different, if at all, in the short-term and the long-term.
It wouldn’t be a recommended action of this company to engage in a series of pricing differences. If they are to remain competitive in a...