Question

In which of the following ways does demand influence profit? a-it reduces the unit cost of production b-It helps in reducing the variable cost of production c-It predicts how many units will be sold d-it directly influences the fixed cost of production

Answer 1

Profit per unit is computed as: - Selling price per unit Cost price per unit Now the cost per unit consist of fixed cost and variable cost. The variable cost depends on the number of units sold and therefore is a constant but the fixed cost per unit is computed as Total fixed cost/demand Therefore the demand directly impacts the fixed cost of production which lowers the cost per unit and therefore increases the profit per unit. Therefore D is the correct answer here.