3. Profit maximization using total cost and total revenue curvesSuppose Yakov runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear.The following graph shows Yakov'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 Yakov produces. Yakov's profit is maximized when he produces teddy bears. When he does this, the marginal cost of the last teddy bear he produces is , which is ___ than the price Yakov receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize his profit) is , which is than the price Yakov receives for each teddy bear he sells. Therefore, Yakov's profit-maximizing quantity corresponds to the intersection of the curves. Because Yakov is a price taker, this last condition can also be written as . Lise the blue paints (circle symbal) to plot total revenue and the green points (triangle symbal) to plot profit for teddy bears quantities zero throughseven (inclusive) that Yakov produces.200175Total Revenue190Total Cost125Proft10025-251.QUANTITY (Teddy bears)(sIeonl anNARH INV Ison IVLO Calculate Yakov's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them an the following graph. Lise the bluepoints (circle symbol) to piot marginal revenue and the orange points (square symbal) to plot marginal cost at each quantity.Marginal RevenueMarginal Cost201510QUANTITY (Teddy bears)Yakov's profit is maximized when he producesteddy bears. When he does this, the marginal oost of the last teddy bear he produces is, which is less v than the price Yakov receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear(that is, one more teddy bear than would maximize his profit) iss,which isv than the price Yakov receives for each teddy bearhe sells. Therefore, Yakov's profit-maximizing quantity coresponds to the intersection of thecurves.Because Yakov is a price taker, this last condition can also be written as(eag Appm ad son) anNAAH IN R ISOn

The correct answer is given in the second step.

Answered: Lise the blue paints (circle symbal) to…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: The Cost Of Production

Section: Chapter Questions

Problem 1CQQ

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3. Profit maximization using total cost and total revenue curves

Suppose Yakov runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear.

The following graph shows Yakov'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 Yakov produces.

Yakov's profit is maximized when he produces

teddy bears. When he does this, the marginal cost of the last teddy bear he produces is

, which is ___ than the price Yakov receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize his profit) is

, which is than the price Yakov receives for each teddy bear he sells. Therefore, Yakov's profit-maximizing quantity corresponds to the intersection of the curves. Because Yakov is a price taker, this last condition can also be written as .

Lise the blue paints (circle symbal) to plot total revenue and the green points (triangle symbal) to plot profit for teddy bears quantities zero through
seven (inclusive) that Yakov produces.
200
175
Total Revenue
190
Total Cost
125
Proft
100
25
-25
1.
QUANTITY (Teddy bears)
(sIeonl anNARH INV Ison IVLO

Calculate Yakov's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them an the following graph. Lise the blue
points (circle symbol) to piot marginal revenue and the orange points (square symbal) to plot marginal cost at each quantity.
Marginal Revenue
Marginal Cost
20
15
10
QUANTITY (Teddy bears)
Yakov's profit is maximized when he produces
teddy bears. When he does this, the marginal oost of the last teddy bear he produces is
, which is less v than the price Yakov receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear
(that is, one more teddy bear than would maximize his profit) iss
,which is
v than the price Yakov receives for each teddy bear
he sells. Therefore, Yakov's profit-maximizing quantity coresponds to the intersection of the
curves.
Because Yakov is a price taker, this last condition can also be written as
(eag Appm ad son) anNAAH IN R ISOn

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