Question

Jeff has been given exclusive rights to sell the college-branded t-shirt online. He pays $100 a month for a Web server and internet connect. He also pays $20 each t-shirt to the company that sells him the printed t-shirts which he sells on his website. The table below shows his demand schedule for the college-branded shirts Price Quantity ($s per t-shirt) (t-shirts per month) 0 100 10 80 20 60 30 40 40 20 50 0 On one graph, draw the demand curve, marginal revenue curve, and marginal cost а. curves. Label each curve. b. Using your graph above, what is Jeffs profit-maximizing quantity? What price does Jeff charge? What is Jeffs total profit? С. d.

Answer 1

(a) The marginal revenue would be
47R MR == ΔΟ
. The total cost of production would be as
TC = 100+ 200
, and the marginal cost would be
MC = (TC) = 20
. The MR table would be as below.

Q	P	TR	MR
0	50	0	-
20	40	800	40
40	30	1200	20
60	20	1200	0
80	10	800	-20
100	0	0	-40

The graph would be as below.

50- ----- MC 7 Demand 50 MR -50

(b) The profit maximizing quantity would be where the MC=MR, which is where Q=40 units.

(c) Corresponding to Q=40, the demand price is $30, which would be the price charged by Jeff.

(d) Jeff's total profit would be $\pi = TR - TC$ or
T = PQ - (100+200)
or
= 30 * 40 - (100+20 + 40)
or $\pi = 1200 - 900$ or $\pi = 300$ dollars.