Visualize Price Impact on Demand and Profit Trends

Q: Visualize Price Impact on Demand and Profit Trends

This question evaluates understanding of price sensitivity, demand curves, and profit maximization, requiring competency in economic reasoning and quantitative interpretation of how price changes affect quantity demanded and profits.

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Question

Price Sensitivity and Profit Curves

Context

You are modeling a single network service with a per-unit price p offered to a large market. Customer demand decreases with price. For clarity, assume:

A standard downward-sloping demand curve.
Constant marginal cost (MC) = c per unit, and optional fixed cost F.
No capacity constraints.

Tasks

Sketch and explain the expected relationship between price (p) and quantity demanded (Q).
Sketch total profit (π) as a function of price and explain the shape. Indicate where profit is maximized and why.

Visualize Price Impact on Demand and Profit Trends

Price Sensitivity and Profit Curves

Context

Tasks

Solution

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