Question

Please complete graph with (x,y) points and complete fill in the blanks

3. Profit maximization using total cost and total revenue curves Suppose Valerle runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $20 per teddy bear. The following graph shows Valerie's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Valerie produces. 175 Total Revenue Proft 19

Answer 1

Consider the Chart 1 given below: Total Revenue 75 25 QUANTITY (Frying pans) This chart is showing total revenue (TR), total cost (TC) and profit. Blue line denotes TR, orange line denotes TC and green line denotes the profits Convert this Chart 1 into Table 1 to find the marginal revenue (MR) and marginal cost (MC) MC MR Profits TC TR uantity 10 -10 0 20 20 20 20 15 20 40 20 20 20 10 20 20 30 60 30 20 15 35 20 80 45 100 20 30 70 25 20 100 120 30 20 20 20 135 140 20 35 20 Marginal revenue is calculated by the formula given below:

ATR 20-0 ATR -0 and when the quantity becomes 1, MR is 20 When the quantity is 0, MR is 0 AQ 1-0 Similarly, find other marginal revenue as shown in Table 1 Marginal cost is calculated by the formula given below: ATC AQ C-o)and when the quantity becomes i, MC is i5( 1-20-15) ATC АТС 35-20 When the quantity is 0, MC is 0 AQ AQ 1-0 Similarly, find other marginal cost as shown in Table 1 Draw the Chart 2 depicts the Marginal revenue (MR) and marginal cost (MC) 40 35 Marginal Revenue 30 25 Marginal Cost 20 15 10 QUANTITY (Frying pans) This chart is showing Marginal revenue (MR) and Marginal cost (MC). Blue line denotes MR and orange line denotes MC

Valeria's profit is maximized at the quantity where the marginal cost is equal to price and profit is maximum because it is competitive market. Since the price of teddy bear is $20, the Valeria will produce 4 units of teddy bears because at this quantity, price and marginal cost are equal ($20) When he does this, marginal cost of last teddy bear is S15 which he gets from his last unit. This marginal cost is less than the price. When he does this, marginal cost of additional teddy bear is $25 which he gets from producing next unit. This marginal cost is greater than the price. Valeria's profit maximizing-quantity to the intersection of the Marginal revenue and marginal cost. Because Valerial is a price taker, this is the last condition also written as P MC