Mrs. Acres Homemade Pies Mrs.

Mrs. Acres Homemade Pies

Mrs. Acres currently operates at maximum capacity, but remains unable to satisfy the demand for her pies. She is presented with three options -- increasing prices, expanding the operations or contracting the production operations to a restaurant chain and maintaining a percentage of the income. Given these alternatives, it would be interesting to reveal if, how, and why modifications would occur relative to the supply, demand and price of the homemade pies.

Scenario 1 -- Maintaining current conditions while increasing retail prices

In this case, the price of the pies would increase as the direct consequence of the decision made by Mrs. Acres. Based on the laws of political economy, it will be safe to conclude that the demand for the homemade pies will decrease as fewer consumers will be willing to pay the higher price. At its core, the supply of pies will remain the same; yet, relative to the movements which characterized the price and the demand, the supply could be perceived as incremental. All these modifications are expected to occur within the short-term. Considering that no major changes are introduced to the business model, the long-term is expected to witness a stabilization of the short-term implications, without generating any additional changes.

Scenario 2 -- Expanding the business operations but maintaining the current level of prices

In this situation, the price remains the same in the short run, as the direct consequence of the decision made by the owner of the business. Within the long run, the price is expected to remain the same -- unless major changes are implemented by Mrs. Acres. In terms of the supply, this will also increase as a direct outcome of the decision to increase production capabilities. Within the long-term, it is expected to maintain the same trend in the meaning of not suffering significant changes. Its relative volume however could change as set by movements in the price or the supply. As a general economic principle:

When the price of a product or service increases, the demand for the respective product or service is expected to decrease, while the supply is expected to increase

Vice versa, if the price of a product or service decreases, the demand for the respective item will increase, while the supply will decrease.

Given the context of an increasing supply, the demand for Mrs. Acres' homemade pies is expected to decrease; only in the short-term however. As her products better penetrate the market and advertise for themselves, the demand is expected to once more increase in the long-term.

Scenario 3 -- Contracting the production to a restaurant chain and maintaining a percentage of the income