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Elastic & Inelastic Supply Scenarios in Business Decision-Making

Understand the impact of elastic and inelastic supply on business decisions in various scenarios. Learn how firms adjust production levels based on market prices and inventory, using examples from the cookie industry and labor market dynamics.

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Elastic & Inelastic Supply Scenarios in Business Decision-Making

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  1. A firm is operating at 90% capacity. When the market price for their product rises and they want to increase QS, ………. • They will be able to respond because their S will be relatively elastic • They will not be able to respond very much because their S will be relatively inelastic

  2. The firm has 3 months worth of production held in inventory. The market price has increased. • The firm will respond by increasing S – simply by bringing the inventory to market • The firm has a relatively elastic Supply • Neither 1 or 2 • Both 1 and 2

  3. --Firm A makes cookies. They can easily change from one brand of flour to another. --Firm B makes a special diet cookie that must use a only Brand X flour. • Both firms have elastic S curves • Neither firm has an elastic S curve • Firm A- inelastic S curve • Firm B – elastic S curve • Firm A – elastic S ; Firm B – inelastic S

  4. Which scenario would create an inelastic S curve? • A firm was able to convince its highly skilled workers to move to the west coast to build a new production facility • An accounting firm has very little physical capital besides its office furniture. There was a significant increase in demand for accountants in Europe • Both 1 and 2 would result in elastic S curves • Both 1 and 2 would result in inelastic S curves

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