Question

Explain how the demand and supply model relates to the maturation phase of the product life cycle. How will profit incentives lead to different responses of what to produce?

Answer 1

The Maturity stage of a product is one, wherein the product has matured in the sense that is is freely available in the market place, and the demand for these products has already increased over a period of time. The total and overall production in this market type also is already high and so is the level of competition in the market.

During the maturity phase, the demand and supply of goods and services ultimately go on declining as the level of competition rises and market share becomes sub divided into the numerous suppliers that already exist for the market type. Slowly and gradually the revenue for firms begin declining unless they chose to innovate and provide new products or features which the customer can relate with, The demand for goods and services also decline.

Thus, we can conclude by saying that maturity stage is one wherein the overall or aggregate demand for goods as well as the supply side sees a gradual shrink and the total demand as well as supply sees a huge hit.

Profit margins have a deep rooted connection on producers when they decide on what goods and services they would produce in the market place. Usually, producers prefer to stay in market types wherein demand is consistent and can be predicted and the profit margins over a period of time accumulate and stay stable. In maturity stage for an example, the producer chooses to stay in the industry if he expects that the expenditure on innovation would lead to new products, the demand for which would cover the costs of investment as well as bring in better returns for the business owner. The end result of this is that we can conclude by saying that a producer is at its best when he maximizes profits by innovating or producing new goods which are accepted by the market and it helps him grow. Unless this advantage is provided to the company it ceases to exist and will most likely switch over to other products which may offer better growth rates for a firm.

Please feel free to ask your doubts in the comments section if any.