3. Profit maximization using total cost and total revenue curves Suppose Cho 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 Cho's total cost curve. Lise the blue points (aircle symbol) to plat total revenue and the green points (triangle symbal) to plot profit for shirts quantities zero through seven (inclusive) that Cho produces. 200 175 Total Revenue 190 Total Cost 125 Prott 100 75 25 25 QUANTITY (Sins) Cakculate Cho's marginal revenue and marginal cost for the first seven shirts she produces, and plot them on the following graph. Use the blue points (circde symbol) to piot marginal revenue and the orange points (square symbal) to plot marginal cost at each quantity. Marginal Reverue Marginal Cost 1. QUANTITY (Ss) Cho's profit is maximized when she produces shirts. When she does this, the marginal cost of the last shirt she produces is which is - than the price Cho recelves for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize her profit) is s . which is v than the price Cho receives for each shirt she sells. Therefore, Cho's profit-maximizing quantity corresponds to the intersection of the curves. Because Cho is a price taker, this last condition can also be written as RRR CUSIS ANU VENUE oears per snt (seon) anwaAH ISnn ni
3. Profit maximization using total cost and total revenue curves Suppose Cho 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 Cho's total cost curve. Lise the blue points (aircle symbol) to plat total revenue and the green points (triangle symbal) to plot profit for shirts quantities zero through seven (inclusive) that Cho produces. 200 175 Total Revenue 190 Total Cost 125 Prott 100 75 25 25 QUANTITY (Sins) Cakculate Cho's marginal revenue and marginal cost for the first seven shirts she produces, and plot them on the following graph. Use the blue points (circde symbol) to piot marginal revenue and the orange points (square symbal) to plot marginal cost at each quantity. Marginal Reverue Marginal Cost 1. QUANTITY (Ss) Cho's profit is maximized when she produces shirts. When she does this, the marginal cost of the last shirt she produces is which is - than the price Cho recelves for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize her profit) is s . which is v than the price Cho receives for each shirt she sells. Therefore, Cho's profit-maximizing quantity corresponds to the intersection of the curves. Because Cho is a price taker, this last condition can also be written as RRR CUSIS ANU VENUE oears per snt (seon) anwaAH ISnn ni
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter8: Output, Price, And Profit: The Importance Of Marginal Analysis
Section: Chapter Questions
Problem 5TY
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3. Profit maximization using total cost and total revenue curves
Suppose Cho 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 Cho'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 Cho produces.
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