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Economic Production: Limiting the Number of Units

Why would companies limit the number of units produced? Does this invariably lead to "black markets"? How do black markets shift the supply and demand curves?

What other determinants of supply or demand (book calls these "shifters") might cause a change in the supply and demand curves?

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Companies limit the number of units produced because a decrease in supply allows prices to increase. Companies also limit supply to keep demand high. This allows companies to maximize their margin dollars while minimizing their investment and operating expenses. This does ultimately lead to a black market, only if the price does not adjust for demand. A black market will not ...

Solution Summary

This solution discusses why would companies limit the number of units produced and does this invariably lead to "black markets." It also discusses how do black markets shift the supply and demand curves and what other determinants of supply or demand (book calls these "shifters") might cause a change in the supply and demand curves. A helpful link is included.

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