Economics and Ethical Issues
Dana BURNBUS 508 015016*201004
April 28, 2010
Dr. Dennis Darlak
Mrs. Acres Homemade Pies was started by Shelly Acres, whose grandmother passed down a family recipe for making pies. Together with her love for cooking and her family recipe, Shelly ventured into the specialty pie business, selling to local supermarkets and family restaurants. Within a short amount of time, Mrs. Acres’ business began to boom in high demand, resulting in an increase in staff and production. Shelly then expanded her operations which in turn increased production and sales. Demand for Mrs. Acres Homemade Pies is steadily on the rise and accelerating beyond what she’s currently able to supply (Ferrell, Hirt & Ferrell, 2009). Shelly Acres is now faced with making a critical decision for the future and longevity of her business. Supply, demand and price are the primary factors she must consider. These factors will also be addressed in the short-term and long-term growth of Shelly’s business.
1. Discuss what will happen to the supply, demand and price of the product in the short-term.
As it currently stands, Mrs. Acres Homemade Pies cannot supply the quantity demanded. If the supply of pies remains constant and demand increases, the demand will raise the equilibrium price and equilibrium quantity due to production cost (McConnell & Brue, 2008). The increase in price will then result in a change in quantity demanded. The change in quantity demanded is a movement from one point to another point, from one price-quantity combination to another, on a fixed demand schedule or demand curve (McConnell & Brue, 2008). For instance, the price of pies is currently $4.50, the equilibrium price. By moving or increasing the price to $6.50, the seller’s price no longer matches what the buyer is willing to pay, therefore causing a decrease in demand. By exploring Shelly’s option to expand operations, supply would then meet demand, thus...