Question

Supply and Demand. I need to write a forum on economics using the manager’s perspective on how to maximize profits using supply and demand. Using at least 75 words to explain. This is some of the chapter on supply and demand.

Supply and demand analysis is a qualitative tool which, empowers managers by enabling them to see the “big picture.” It is a qualitative forecasting tool you can predict trends in competitive markets, including changes in the prices of your firm’s products, related products (both substitutes and complements), and the prices of inputs (such as labor services) that are necessary for your operations. After you use supply and demand analysis to see the big picture, additional tools are available to assist with details—determining how much the price will change, how much sales and revenues will change, and so on. Demand-Suppose a clothing manufacturer desires information about the impact of its pricing decisions on the demand for its jeans in a small foreign market. To obtain this information, it might engage in market research to determine how may pairs of jeans consumers would purchase each year at alternative prices per unit. The market research reveals that if jeans were priced at $10 per pair, 60,000 pairs of jeans would be sold per year; at $30 per pair, 20,000 pairs of jeans would be sold annually.

When there is no ambiguity, it is sometimes convenient to say simply “price” rather than “price per pair” or “price per unit”. For instance, if one of your classmates says gasoline is priced a $3.99 in Indianapolis, you understand that she means $3.99 per gallon. Notice the difference in the price of jeans and the quantity of jeans sold. Everything else that might influence buyer decisions, such as consumer income, advertising, and the prices of the goods such as shirts, it is held constant. In effect, the market survey does not ask consumers how much they would buy at alternative levels of income or advertising; it simply seeks to determine how much would be purchased at alternative prices. The market research reveals that, holding all other things constant, the quantity of jeans consumers are willing and able to purchase goes down as the price rises.

Supply-In a competitive market there are many producers, each producing a similar product. The market supply curve summarizes the total quantity all producers are willing and able to produce at alternative prices, holding other factors that affect supply constant. While the market supply of good generally depends on many things, when we graph a supply curve, we hold everything but the price of the good constant. The movement along a supply curve. This is called a change in quantity supplied. As the price of a good rises (falls) and other things remain constant, the quantity supplied of the good rises (falls). Producers are willing to produce more output when the price is high than when it is low.

Answer 1

Profit maximization is the difference between total revenue and total costs. In a perfectly competitive market, the price is already given. A manager can only increase the revenue by increasing the quantity of goods sold. Price elasticity of demand is a good measure of forecasting sales. Price elasticity of demand determines the responsiveness of quantity sold to changes in price of goods keeping other things constant. The manager will also decide, based on the market price, the quantity to be supplied at various prices. The equilibrium quantity and price is the intersection of the demand and supply curves.