Question

3. Profit maximization using total cost and total revenue curves 

Suppose Kenji runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $25 per shirt. 

The following graph shows Kenji'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 shirts that Kenju produces, including zero shirts. 

Calculate Kenj's marginal revenue and marginal cost for the first seven shirts 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. 

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

Answer 1