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Let me describe the situation:

Company is selling a product; they buy it at x, sell it at some % over for profit. Taken on a monthly scale, you can see the profit of that particular object by multiplying the profit per item by the amount of items sold in that month (not accounting for losses). As the company raises the prices (for whatever reason, but namely to increase profit) customers buy less of it. These are all known and easy to understand principles

It's possible to chart a rough graph comparing the sale price of an item (and also it's % profit) vs individual sales and should be able to use this to find the most % with the most individual sales, thereby making the most monthly profit.

Is there a term for this concept/graph/profit strategy?

A basic example: Item is normally sold at 2usd, with the item costing the company 1usd , selling 33 items a day for roughly 1,000 items a month (just for easy numbers). For various reasons the price of the item (to consumers) is increased by 10% (2.20usd). Albeit a small increase, it's still reasonable to assume that there will be a resulting loss of sales, even if it's 100 sales a month (900 monthly/lose of 3 sales daily) If we assume that increase (0.20u) is profit for the company, we can see that the company can take a loss of sales and make more profit

Base: 1000sold × 1profit = 1000u monthly profit Change: 900sold × 1.2p = 1080 monthly profit

In theory a company could adjust their numbers up and down, observe consumer response, and find the optimal price (and thus profit) over an extended buying period, making the company the most possible money out of a given product.

I understand there are plenty of things that affect costs of items and buyer willingness, but I believe there is a term for this general concept/practice. I apologize for the rather simple and long ways I have go about explaining the situation, I don't hold much economics lingo to be able to convey the ideas in a more fluent manner

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  • $\begingroup$ This sounds like the "profit-maximizing output." $\endgroup$
    – Daniel
    Nov 28, 2022 at 1:05

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Sounds like the demand curve facing the company. It's a function $Q(P)$ which tells you how many items you can sell for a price of $P$. Multiplying by price gives you revenue $R(P)=P\,Q(P)$. Subtracting costs $C(Q(P))$ gives you profit $\Pi(P)=P\,Q(P)-C(Q(P))$. In your example, costs are $1$ USD per item (and no fixed costs), so $C(Q)=Q$. Thus, $\Pi(P)=P\,Q(P)-Q(P)=(P-1)Q(P)$. If you know the shape of the demand function, then you can find the profit maximizing price $P^*$ from this.

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