Question

ttempts: ampts: 0 Keep the Highest: 0/3 3. Profit maximization using total cost and total revenue curves Suppose Sean 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 Sean'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 Sean produces Total Revenue Total Cost Profit TOTAL COST AND REVENUE (Dollars) QUANTITY (She

Answer 1

Total revenue= P*Q= $20*Q

Total cost is given

Profit =Total revenue- Total cost at each output level.

150 -1-40 LTC,TR,profit -130 +1-10 100 -90- 80 70 -60- 50 -40 30 20 10 2/3 4 5 --10- Quantity -20

Marginal cost = Change in total cost/Change in quantity

Marginal revenue= Price= $20

45 MC;MR- 35 30 25 20 15 -10 Quantity

Sean's profit is maximized when he produces 6 shirts.

Marginal cost of last unit is shirt produced is $15 which is LESS than the price.

Marginal cost of additional unit produced is $25 which is MORE than the price.

Profit maximising occurs at the intersection of MARGINAL REVENUE AND MARGINAL COST CURVES.

This can be also written as P=MC.

reason- Profit=$45 is maximum when Q=6.

When Q=5, MC=$15< P=$20

When Q=7, MC=$25> P=$20

So profit is maximized when MC=MR

Since MR=P

MC=P.

If it helps kindly upvote.

For doubts comment below.