Why a firm is willing and able to increase the quantity supplied as the product price increases

Supply and demand are usually related in terms of pricing of a good. It is because the models of demand and supply explain how well a competitive market operates. The law demand and supply stipulates that supply increases with a corresponding increase in demand. The relationship between these two pillars underlies in the factors that lie behind allocation of resources. Market economy theories dictate that, supply and demand approaches pinpoint and indorse the most feasible allocation of resources. Due to this, the law of supply unlike that of demand shows an upward slope. It simply depicts that, as price is increased, then the higher the quantity supplied. As a result, a firm is often willing to increase the quantity supplied even as the product price increases. Why is this?

Well, to begin with, a high product price often discourages customers from buying a certain product t. However, a product price increasing for the customers on another dimension often means that the product quality is improving and therefore pushing its cost therefore pushing is cost on the high end. Such a belief leads to the customers continuing to buy the same product and at special occasions even sees new customers streaming in.

On the firm’s side, a product price increase is a benefit for them in terms of profit margins. It also gives a reliable source of profit margins. It also gives a reliable source of funding for the production costs of the same product. As a result, the firm sees an increase in supply, with the customers ‘favour’ of demand, as a benefit to them financially.

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