I am trying to get the answer for the following example:
Assume I have some bitcoin and want to buy a product from a merchant. Why would the merchant sell that product to me for bitcoin when he bought it from the supplier for dollars?
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Because he can sell the bitcoin for dollars. And in many cases, his alternative would be to accept a credit card payment which costs him around 2%. Converting bitcoins to dollars costs around 0.2% -- one tenth as much. Also, if he accepts a credit card payment, he has to worry about a chargeback (where you claim the payment was unauthorized and the bank reverses the payment). Bitcoin has no chargebacks.
Many businesses pay suppliers in one currency, and then accept a different currency for payments from customers, this is not a rare situation to be in.
For example, a Canadian business may pay a Chinese supplier in USD, but then accept CAD from their customers in-store. Or an American importer may pay their Japanese supplier in JPY, and then accept payment from their customers in USD. In both cases, a currency conversion will need to happen at some point, and so the business would do well to find an efficient way to make that conversion. Bitcoin is no different, the merchant can accept it, and then convert to dollars in order to pay bills, etc.
Of course, the merchant does not have to convert the BTC to dollars, they could decide to keep some (or all) of BTC payments in BTC.
As for reasons why a merchant would want to accept BTC in the first place: