Final answer:
Price impacts sales by affecting demand elasticity. The profit maximizing quantity can be determined by comparing marginal revenue and marginal cost.
Step-by-step explanation:
To analyze how price impacts sales, we can look at the concept of elasticity of demand. Elasticity measures the responsiveness of demand to a change in price.
If demand is elastic, a small change in price will lead to a proportionally large change in sales.
On the other hand, if demand is inelastic, a change in price will have a relatively small impact on sales.
In the case of Doggies Paradise Inc., the profit maximizing quantity can be determined by finding the output level at which marginal revenue equals marginal cost.
By calculating the total revenue and total cost for each output level, we can determine the profit maximizing quantity. The marginal revenue and marginal cost curves can also be sketched to visualize the relationship between price and sales.