Question

Question 3 - Please be accurate and complete! Show graph coordinates please
Profit maximization using total cost and total revenue curves Suppose Sam runs a small business that manufactures frying pans. Assume that the market for frying pans is a competitive market, and the market price is $20 per frying pan. The following graph shows Sam'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 frying pans that Sam produces, including zero frying pans. Calculate Sam's marginal revenue and marginal cost for the first seven frying pans 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. Sam's profit is maximized when he produces frying pans. When he does this, the marginal costs of the last frying pan he produces is $ , which is then the price Sam receives for each frying pan he sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximized his profit) is $ , which than the price Sam receives for each frying pan he sells. Therefore, Sam's profit-maximizing quality corresponds to the intersection of the curves. Because Sam is a price taker, this last condition can also be writen as .

Answer 1

From the given total cost andprice information, the following table can be constructed: MC TR 20 20 20 20 20 20 20 20 Quantity TC Profit -20 -15 0 15 25 30 25 15 0 20 35 40 45 0 20 40 60 80 100 120 140 15 4 70 95 125 10 15 25 30 Price is $20 at each quantity level since the firm is a price taker. The total revenue is price multiplied by quantity. Profitis calculated by subtracting total cost from total revenue The total revenue, total cost andprofit curves can be plotted as in the following diagram where the x-axis represents quantity 160 140 120 100 80 60 40 20 TR Profit -20 The marginal revenue and marginal cost curves can be plotted as in the following diagram where thex-axis represents quantity 35 30 25 20 MC 15 MR 10 0 0 Profit is maximized when the firm manufactures 5 shirts. When the firm does this, the marginal cost of the last shirt manufactured is S15 which is less than the price the firm receives for each shirt it sells. The marginal cost of producing an additional shirt is $25 which is greater than the price the firm receives for each shirt it sells. Therefore, the firm's profit maximizing quantity corresponds to the intersection of the marginal cost and marginal revenue. Since the firm is a price taker, this last condition can also be written as P- MC 2