Question

Demand for bikes has suddenly increased, and the market price has risen from $50 to $60.In three to five sentences, explain how this change will affect profits.

Answer 1

If there is an increase in demand and the market price has risen, I think it means that there is a decreased of supply. To control the supply of an item or product it needs to be controlled by increasing the market price. If we connect this changes to the profit, if there are no changes in the total cost of an item and still you allowed the market price of your product to increase, there will also be increased with your profit. But if the total cost of purchasing that product rises and affecting this kind of situation, your profit will decrease from the normal. There will be a negative effect on your business. 

Answer 2

Profits represent what the company has a result of the difference between the turnover or total sales and the overall costs it incurs. Given the stepped up unit price, there will be a boost in turnover accordingly. If the total costs remain the same or grow below the level of increase in revenues, then profits will be higher. If the increase rate of turnover is less than the increase rate of total costs for a reason or another, then the company will experience a cut in profits.