Question

demand and supply elasticity and profitability concepts

Answer 1

Elasitcity is the responsiveness of the price. Elasticity of demand is the responsiveness of quantity demanded due to change in price and Elasticity of supply is the responsiveness of quantity supplied due to change in price.Demand and price show inverse relationship and supply and price show direct relationship. Elasticity of demand and supply shown clearly in attached diagram. While price increased then demand will decreases but supply will increases with price increases and vice versa. These 3 factors are connected with profit. Proftability is the ability of a firm to earning profit. or A firm can earn how much profit for a particular period of time called profitability. Profit is determined by demand and supply of a market. Demand rises and Supply rises increases the profit. Because price are related to cost of production. Price fall demand will rises then supply increases then to increases the supply need to produce more so need to increases the costs of production will tend to increase marginal cost and thus reduce the supply then increases the demand thus market automatically managed by demand and supply . Thus Price mechanism working in the economy pricemechanism help to profit maximisation. So demand and supply increases profitability of a firm.