Final answer:
To find the maximum annual profit and the corresponding sales volume and selling price per unit, a company must calculate and compare total revenues and total costs at different price levels. Marginal costs and revenues are also crucial in this decision-making process. However, without complete data, we cannot find a specific maximum profit.
Step-by-step explanation:
To determine the maximum annual profit a company can earn on a product, given their ability to increase annual sales by 5,000 units for each $2 reduction in selling price, one would need to calculate revenues and costs for different price points. To calculate total revenues, multiply the number of units sold by the selling price. Then, subtract the total costs from the total revenues to get profits. The selling price that gives the highest profit after all these calculations would be the optimal price. However, the necessary information such as variable costs per unit or initial price is missing in the provided details, so a specific answer cannot be determined without additional data.
It is also important to consider marginal costs and marginal revenues. If the price is lower than the average cost, the firm is not making a profit at that production level. Moreover, if the marginal unit is not adding to profits, the firm should reduce production. In practice, firms will adjust their output to the point where marginal cost is equal to the marginal revenue to maximize profits.