Question

3. Profit maximization using total cost and total revenue curves

Suppose Maria runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $20 per shirt.

The following graph shows Maria's total cost curve.

Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Maria produces.

Calculate Maria's marginal revenue and marginal cost for the first seven shirts she produces, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost at each quantity.

Maria's profit is maximized when she produces _______ shirts. When she does this, the marginal cost of the last shirt she produces is $_______ , which is _______ than the price Maria receives for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize her profit) is $_______ , which is _______ than the price Maria receives for each shirt she sells. Therefore, Maria's profitmaximizing quantity corresponds to the intersection of the _______ curves. Because Maria is a price taker, this last condition can also be written as _______ 

Answer 1

Q	TC	TR	Profit	MC	MR
0	10	0	-10
1	15	20	5	5	20
2	20	40	20	5	20
3	30	60	30	10	20
4	45	80	35	15	20
5	70	100	30	25	20
6	100	120	20	30	20
7	135	140	5	35	20

Total Revenue Total Cost Profit TOTAL COST AND REVENUE (Dollars) 0 1 2 3 4 5 QUANTITY (Shirts) 6 7 8

Marginal Revenue Marginal Cost COSTS AND REVENUE (Dollars per shirt) 0 1 2 6 7 8 3 4 5 QUANTITY (Shirts)

Blanks-

1) 4

2) 15

3) less

4) 25

5) more

6) MC=MR

7) P=MC

Answer 2

If the value is 25