Question

Suppose Carlos runs a small business that manufactures frying pans. Assume that the market for frying pans is a price-taker market, and the market price is $10 per frying pan.

The following graph shows Carlos's total cost curve.

Use the blue points (circle symbol) to plot total revenue, and the green points (triangle symbol) to plot profit for the first seven frying pans that Carlos produces, including zero frying pans.

Calculate Carlos's marginal revenue and marginal cost for the first seven frying pans he 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.

Carlos's profit is maximized when he produces _______ frying pans. When he does this, the marginal cost of the previous frying pan he produces is $ _______ , which is  _______ than the price Carlos receives for each frying pan he sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximize his profit) is $ _______  , which is  _______ than the price Carlos receives for each frying pan he sells. Therefore, Carlos's profit-maximizing quantity corresponds to the intersection of the  _______ curves. Because Carlos is a price taker, this last condition can also be written as  _______ .

Answer 1

Write down TC and P values from the given graph and find out values of TR (=PxQ) , Profit (= TR – TC), MC (= TCn – TCn-1) and MR (TRn – TRn-1) Profit MC TC TR MR 15 -15 30 20 -10 15 20 2 40 40 10 20 3 45 60 15 20 4 50 80 30 20 60 100 40 10 20 6 75 120 45 15 20 100 140 40 25 20 The graphical representation is below:

200 Total Revenue Total Cost Profit QUANTITY Marginal Revenue Marginal Cost QUANTITY TOTAL COST AND REVENUE (Dollars) COSTS AND REVENUE (Dollars per teddy bear)

1. 6 frying pans 2. MC = $15 3. Less than 4. $25 5. Greater than 6. MR and MC curves 7. P = MC