Supply, Demand and Monopolistic Competition-Economic and Ethical Issues

Racquel McPhatter
Dr. Flegle
BUS508 The Business Enterprise Winter 2010
10-29-09

Supply, Demand and Monopolistic competition
In our reading we see that Shelly Acres became very successful when she began selling pies using her grandmother’s recipe. As mentioned in the text, Shelly was not prepared for the amount of product customers were demanding. We see that in order for Mrs. Acres Homemade Pies to keep up with demand, Shelly had to borrow money and increase her staff (Ferrell & Hirt, pg.30, para 2). Awareness levels were highest amongst consumers and or small businesses throughout the community. In the short term, the quality of the product speaks for it’s self therefore Shelly needs to expand the facility and staff and keep the price the same (Ferrell & Hirt, pg.30, para 2). In the law of demand we know that people buy more of a product at a lower price than they would a higher price (Ferrell & Hirt, pg.44, para 3). If Shelly increases the price there is a large chance that her profits will be decreased as well as the demand for pies.
As it relates to the supply and demand in the long-term, Shelly will be able to take more time in reviewing resources and costs. This will allow her to make a better decision on how she would like to continue operating her business. Shelly can see and predict her profit if the price of the pies were to be increased. At the point where the supply and the demand curve intersect, you will see the equilibrium price. From the supply side, if you increase the supply, the equilibrium price decreases, and the quantity increase, therefore you will have a new equilibrium price (Ferrell & Hirt, pg. 54, para 4). The new price can be lower than before depending on consumers and how much they are willing to pay for products. Basically, an increase in demand raises both the equilibrium price and quantity (Ferrell & Hirt pg. 54, para 3).
In a monopolistic competition, Soft drinks differs slightly from it’s competitors because of the various flavors one could produce. I will introduce the factors of production and provide examples of natural, human and financial resources. You want to provide products that stand out above the rest. Make