FIRM 1

Dear Economist,

It is with a heavy heart that I write to you today.My firm, Go-Go Gadgets, is all over the place in the market right now.We sell gadgets and we think we have the best gadgets in the world - certainly better than that run down firm owned by the Inspector.However, currently, we have two warehouses FULL of gadgets in addition to all the stores that carry them being fully stocked.We're not sure how to deal with that exactly.To give you a little bit of background, we first got into the market for gadgets a while back because we heard a lot people saying "I don't really need a gadget, but it'd be nice to have."We thought that meant people wanted them so we produced a whole bunch.We originally asked for $25 a gadget, which didn't seem like much to us, but we only sold about 100 or so and had thousands left over.Someone in our marketing department had the idea that we should get a celebrity to endorse our gadgets, so we did.All of a sudden, we were selling exactly what were making with no left-overs, but we didn't change the price.Why do think that happened?We anticipated even more sales so we doubled our production.Before long, we were overstocked again and were losing a lot of money.Someone suggested we cut the price, but after investing all that money in double production, I wasn't about to do that, so we recently raised the price to $30 a gadget, which has gotten us to where we are now.What are we doing wrong?

Sincerely,

Stan, the Gadget Man