Final answer:
Ordering too many raw materials may result in increased holding costs and potential stock obsolescence if demand does not rise as anticipated. Firms would likely alter production methods if an input's cost increased significantly. Incorrect anticipation of demand and input costs contrasts with standard market behaviors and could negatively impact cost efficiency and pricing.
Step-by-step explanation:
If a business orders too many raw materials in anticipation of an increase in demand for finished goods, several consequences are likely. This excess inventory may lead to increased holding costs, such as storage and insurance, and potentially result in obsolete stock if the demand does not materialize as expected. From a demand and supply perspective, this strategy could run counter to expected market behaviors.
Typically, higher prices reduce the quantity demanded, while lower prices can stimulate it—at least to natural limits. Overestimating the demand could lead to excess capacity, forcing price reductions with lower or no profit margins, or even potential losses if the goods are perishable or become outdated quickly.
Firms that find one input becoming more expensive might shift towards alternative production technologies or inputs where possible to maintain cost efficiency. This adaptive behavior is necessary to ensure that production costs do not soar uncontrollably, which could force price increases or reduce profit margins.
Economies of scale, another important factor, suggest that production increases lead to lower average costs; however, if each firm has to invest in its infrastructure (as mentioned with power lines), this will lead to higher average costs and higher prices for the end products.