I am reading an article about price-takers vs. price-makers, and it says the following:
A Price Maker can alter the output of its product at any time to suit its needs for profit maximization. For instance, if a firm wants to increase the price, it will reduce the amount of the product output inducing demand. However, a price maker can regulate supply only when it has a monopoly over the product.
Why would reducing the quantity supplied cause the quantity demanded to increase. Let’s say that the quantity demanded is 100 when the quantity supplied is 100. But then the quantity supplied drops down to 50. Why would I, as a consumer, suddenly demand more just because the overall quantity decreased? Furthermore, why would I be willing to pay more for something just because there’s now less of it? Like, if I’m willing to buy a car for 40,000 dollars when the supply of cars is, let’s say, 1,000, why would I suddenly be willing to buy a car for 60,000 dollars if the supply of cars dropped to 500? Especially if I have to get the car from the same supplier no matter what.
Also, secondary question, why would a company limit its supply just so it can sell at a higher price? Wouldn’t it make more sense if they kept the price relatively lower so they make more money overall rather than raise the price and make less overall? For instance, you would make more money from selling 100 units at 5 dollars each than 50 units at 9 dollars each. The implication I get from the article is that a company should just make only one product or item so they can sell it for the highest possible price.