Imagine, you work at a burger parlor. 

The first customer walks in and requests for one fish burger. You apologize and tell the customer that unfortunately you keep only chicken and pork based burgers and supply them since those are the ones in demand. This concept of shops supplying what is in demand relates to market demand-supply. 

The customer then grins and orders a chicken burger. He glares at his watch and says, “Please make it fast. I am starving.” You agree and quickly hand him the burger. He relishes the burger and the enjoyment of eating it is referred to as utility.
He comes back to the counter and requests for one more of the same burger. He even gives out a laugh and says, “I am just super hungry.” He then eats the other burger and asks for the bill. You go to him with the bill and ask him if he liked the food. He says, “Hey the burgers were good, but the first one was better.” You realize that he liked the first one more since he was relatively more hungry. Then you relate this to the diminishing marginal utility of demand, which states that with every new unit of the good, your happiness or demand for that good tends to reduce. 

You go back to the counter and attend to the new customer. The customer scans through the menu and sighs. She says that the McDonalds down the street sells a chicken burger for $10, so she would rather go there unless you give her the same or lower price. You refuse and say that if you do that, eventually you will not be able to run the place and go into a loss. You even tell the customer that you guarantee better quality. The customer still seemed reluctant and was ready to leave. You request them to wait and you quickly do some math in your mind and say that the least price you could offer is $11, since that is your equilibrium. You offered a cheaper price to retain the customer and survive even with competition in the market. However, you compromised on your profit. If you sold the burger at the original price of $15, you would be maximizing profits. The customer still was adamant and proceeded out of the shop door.

You then realize that if this keeps happening McDonald’s will eventually take away all your customers. You decide that one way out is you ask each customer to pay a different price. This way if a customer is willing to pay the original price of $15 for the chicken burger, you will not offer them your equilibrium price of $11. Offering different prices to different customers is price discrimination, which will help you remain in profit and cater to the market demand. You start manipulating prices to see how much is each customer willing to pay. However, soon enough, word starts to spread that you are offering everyone different prices. Your customers get upset with you and no one visits your parlor anymore. To sustain your burger business, you need to look for a solution. 

You decide that you want to regain your customers and the only way to do that is start selling at a cheaper price than McDonald’s. You decide that now you will charge everyone $9 which acts as a price ceiling for the chicken burger. Slowly, you start getting customers back and a few months later, you have many more customers than you usually have. However, you realize that per burger you are at a loss. You now know that the only way to make profit is increase the price but this would mean losing your customer to McDonald’s. So you set up a meeting with the owner of McDonald’s. You convince McDonald’s that since y’all are competitors, if you both raise prices of the burgers, both of you can maximize profits. This way price fixing can help with maximizing profits. McDonald’s agrees. Now, both you and McDonald’s burger shops are the only two burger joints in the area and hence an oligopoly is set up, which means lesser competition in the area. Both of you can control the market. 

Few months go by but now you want to attract customers to only your shop and even take away the customers that are loyal to McDonald’s. You understand that the only solution is buying the McDonald’s shop in your area. But to do that you need resources i.e. enough money. You look at your bank account and realize that there is a shortage of funds. To make up the shortage you talk to your bank manager, who offers you a loan at an interest rate. You take up the loan offered and buy the McDonalds shop. Now you have 2 burger shops and this way you are a monolpoly in the market. You are the only burger chain that exists in the area so you are bound to make profits without any competition. You understand the competition free market and again raise the price of your burger to $15. Now you make profit and simultaneously pay back the loan. 

Slowly, you realize that it is getting difficult for you to manage both shops and you will need more employees. Labor forms a part of the factors of production and increasing it will affect cost of production. This way profits will reduce as a part of earning is used to give a salary to the labourers. However, it has become easier to manage the two shops. In a few months time, you realize that the market has new machines to make burgers. You now realize technology is an asset and can help reduce the cost of production and ensure the supply of burgers produced increases. You now run a settled business which is also profitable.

However, life keeps throwing challenges to you. Lot of chicken in your surrounding kept drinking unclean water and as a result were not fit for consumption. Hence the chicken that were fit for consumption started to become very expensive. You now realize that if chicken is expensive, your cost to make chicken burgers also rises since they are complementary goods. This way your profit margin kept reducing. You found out that there are new plant-based chicken available in the market. You now decide that the plant based chicken is a good substitute for the chicken to put in the burgers. This way your cost of producing burgers does not rise. You now start selling plant based chicken burgers. People now start to appreciate it since you’re reducing your carbon footprint and trying to prevent global warming. You start making more money as more customers come. Ultimately you use the same money you earn into marketing by advertising health benefits of having plant based chicken burgers.

Your strategy works as more people tend to come and eat the burgers. Your business is running smoothly now. 

Eventually, other burger chains from different areas also use the same strategy to use plant based burgers. Hence, the supply of plant based meat become difficult. Even the government wishes to stop the meat and support plant based options. As a result, the government intervenes and  subsidizes the plant based meat by providing it at a cheaper price. They even solve the problem of scarcity by ensuring plant based meat manufacturing industries are given enough incentive to produce plant based meat. You now finally think this will be an end to your problems. 

However, a new competitor now arrives in the market and decides to sell at a cheaper rate than both your burger shops. And the cycle continues…