4. Profit maximization using total cost and total revenue curves Suppose Sharon runs a small business that manufactures shirts. Assume that the market for shirts is a price-taker market, and the market price is $10 per shirt. The following graph shows Sharon'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 shirts that Sharon produces, including zero shirts. 125 100 75 50 25 0 -25 -50 30 25 15 0 0 1 0 2 1 2 3 4 5 QUANTITY (Shirts) D 3 5 QUANTITY (Shirts) Calculate Sharon's marginal revenue and marginal cost for the first seven shirts she 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. (?) 4 П 6 Total Cost ☐ 6 7 7 8 Sharon's profit is maximized when she produces which is than would maximize her profit) is $, which is maximizing quantity corresponds to the intersection of the last condition can also be written as o 8 Total Revenue Profit -O (?) Marginal Revenue Marginal Cost shirts. When she does this, the marginal cost of the last shirt she produces is $ than the price Sharon recelves for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than the price Sharon receives for each shirt she sells. Therefore, Sharon's profit- curves. Because Sharon is a price taker, this
4. Profit maximization using total cost and total revenue curves Suppose Sharon runs a small business that manufactures shirts. Assume that the market for shirts is a price-taker market, and the market price is $10 per shirt. The following graph shows Sharon'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 shirts that Sharon produces, including zero shirts. 125 100 75 50 25 0 -25 -50 30 25 15 0 0 1 0 2 1 2 3 4 5 QUANTITY (Shirts) D 3 5 QUANTITY (Shirts) Calculate Sharon's marginal revenue and marginal cost for the first seven shirts she 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. (?) 4 П 6 Total Cost ☐ 6 7 7 8 Sharon's profit is maximized when she produces which is than would maximize her profit) is $, which is maximizing quantity corresponds to the intersection of the last condition can also be written as o 8 Total Revenue Profit -O (?) Marginal Revenue Marginal Cost shirts. When she does this, the marginal cost of the last shirt she produces is $ than the price Sharon recelves for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than the price Sharon receives for each shirt she sells. Therefore, Sharon's profit- curves. Because Sharon is a price taker, this
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter8: Perfect Competition
Section: Chapter Questions
Problem 23RQ: What two lines on a cost curve diagram intersect at the shutdown point?
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