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Supply and demand for Mrs. Acres Homemade Pies

Shelly Acres, whose grandmother gave her a family recipe for making pies, loved to cook, and she decided to start a business she called Mrs. Acres Homemade Pies. The company produces specialty pies and sells them in local supermarkets and select family restaurants. In each of the first six months, Shelly and three part-time employees sold 2,000 pies for $4.50 each, netting $1.50 profit per pie. The pies were quite successful and Shelly could not keep up with demand. The company’s success results from a quality product and productive employees who are motivated by incentives and who enjoy being part of a successful new business.
To meet demand, Shelly expanded operations, borrowing money and increasing staff to four full-time employees. Production and sales increased to 8,000 pies per month, and profits soared to $12,000 per month. However, demand for Mrs. Acres Homemade Pies continues to accelerate beyond what Shelly can supply. She has several options:

• (1) maintain current production levels and raise prices;
• (2) expand the facility and staff while maintaining the current price; or
• (3) contract the production of the pies to a national restaurant chain, giving Shelly a percentage of profits with minimal involvement.

Discussion Questions Explain and demonstrate the relationship between supply and demand for Mrs. Acres Homemade Pies.What challenges does Shelly face as she considers the three options? What would you do in Shelly’s position?

3 pages