Question

Liz produces t-shirts. From the consumers' perspective, her t-shirts are not different from other t-shirts of this kind offered by many other sellers. The going market price of a t-shirt is $7. Liz's total variable costs are shown in the table below. Her total fixed cost is $10 per day.

Answer 1

FC=10

P=7

Q	TVC	TFC	TC	MC	TR	MR	PROFIT
1	4.8	10	14.8		7		-7.8
2	9.55	10	19.55	4.75	14	7	-5.55
3	14.4	10	24.4	4.85	21	7	-3.4
4	19.5	10	29.5	5.1	28	7	-1.5
5	25	10	35	5.5	35	7	0
6	31.05	10	41.05	6.05	42	7	0.95
7	37.8	10	47.8	6.75	49	7	1.2
8	45.4	10	55.4	7.6	56	7	0.6

a) Setting P=MC, Price charged = 7

b) MR from 5th shirt = 7

c) MC of 6th shirt = 6.05

d) Liz should produce 7 shirts to get the highest profit

e) Profit = 1.2

f) Profit per shirt = 1.2/7 = 0.17