4th HM Mica (La Mejor)
1 if the market allows for an increase price increase where the marginal value becomes equal
to the marginal cost and thus the market demands more of a given product, and thus the price
(due to demand increase) also rises, the consequence of this is that the profit that the
company can make is proportional to the increase in the demand for that given product.
However, this situation cannot last indefinitely because sooner or later the consumers will
have enough of the product on hand as to make its demand fall. When this demand falls, the
price or the marginal value that is given to this product decreases. The first gallon of water in
the desert is very expensive, sure. But the millionth gallon, not so much.
2. in simple terms when the demands falls and in so doing there is less production of a
product, the price also decreases because now the consumers realize that they have stored
enough gallons of water for say two months. Now the problem is not only a surplus in the
product in the warehouse but also the ability to stay in business is now in peril. There is too
much stock in the warehouse, not enough buyers and what is worse, the bill pile up such as
inventory cost, warehouse cost, payroll etc. These do not stop coming simply because you
cannot sell. These are not the concerns of your suppliers, or your employees.
3. one of the options for the farmer is not to plant corn. It sounds stupid but bear with me. If
the market is flooded with too much corn, planting more would be suicide. Therefore, the
farmer must look at planting something that there is little supply of or that such supply is in
such inferior quality that he can produce a better product. In the United States there is
something called price loss coverage, which means that the government will pay the
difference between the purchase price and the price when it is lower than the market price.
However, in many other countries you do not have that. The best solution again is for the
farmer to look for a crop that can yield a profit. Plating more corn is an exercise in futility.