The response is to skew. Short? Quote higher, so buyers find you less attractive and sellers more attractive, and the next trade is more likely to flatten you. Long? Quote lower.
Skewing versus widening is a distinction interviewers listen for: skew (shift the mid) manages inventory you already hold; widen (increase the spread) prices more uncertainty or adverse selection. You often need both.
Why limits exist. Inventory risk grows faster than linearly - your ability to exit degrades as size grows - so desks run hard position limits rather than pricing it smoothly.