Final answer:
The calculated quantity demanded for pizza when priced at $2 is 12 units. The price setting involves considering both production costs and the desired profit margin to find a suitable price point for the business.
Step-by-step explanation:
The question at hand deals with the determination of the quantity demanded for pizza when the price is set at $2 based on a given demand equation. Plugging the price into the demand equation, we calculate Qd = 16-2P where P is the price per pizza. Therefore, Qd = 16 - 2(2), which gives us Qd = 12.
Furthermore, the decision on pricing involves understanding the cost factors and the desired profit of the firm. The cost of producing a pizza would include the costs of ingredients, equipment, shop space, and labour, while desired profit would take into account the competitive profit margins in the business. Together, these factors contribute to setting a price point that will place the firm on its supply curve.