Answer :
Final answer:
Customers refrain from buying infinite amounts of ice cream at $3 per scoop due to diminishing utility and budget constraints. A demand curve illustrates that higher prices lead to decreased demand, and the ice cream parlor must find an optimal pricing strategy to maximize profits while maintaining customer demand.
Explanation:
Customers do not keep buying ice cream scoops for $3 each until the store sells out due to the economic principle of diminishing utility. Every scoop of ice cream provides less satisfaction than the previous one, and eventually, the cost of the additional scoop outweighs the pleasure received from eating it. Additionally, customers have a limited amount of money to spend and must consider their overall budget when making purchasing decisions. This fiscal restraint and the diminishing utility work together to ensure that a single customer does not deplete the entire stock of ice cream.
The concept of a demand curve also explains this behavior. As the price of an item increases, the number of units sold typically decreases. If the ice cream parlor raises the price to $3, according to the demand curve, sales are expected to drop because fewer people find the higher price to be worth the enjoyment of the ice cream bar. They might have previously sold 36,000 units at $1.50 each; the higher price of $3 would likely result in a significant drop in quantity demanded. Essentially, the price elasticity of demand indicates that consumers are sensitive to price changes, and as the price rises, the quantity demanded falls.
Moreover, the balance between cost and revenue is vital for the sustainability of the business. The ice cream parlor can decide on the optimal price point that maximizes profit without deterring too many customers. Analysis of the revenue, costs, and profit margins at different price levels helps guide this decision-making process, ensuring economic viability.
