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3. Profit maximization using total cost and total revenue curves Suppose Iyana operates a handicraft pop-up retail shop that sells phone cases. Assume a perfectly competitive market structure for phone cases with a market price equal to $20 per phone case. The following graph shows Iyana's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for phone cases for quantities zero through seven (including zero and seven) that Iyana produces. 200 TOTAL COST AND REVENUE (Dollars) 175 150 125 100 75 50 60 0 〇ロ O O -25 0 1 2 3 4 O O ☐ 5 QUANTITY (Phone cases) Total Cost ப 6 7 8 Total Revenue Profit ? Calculate Iyana's marginal revenue and marginal cost for the first seven phone cases they produce, 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 at each quantity. ? 40 40 35 50 30 COSTS AND REVENUE (Dollars per phone case) 25 25 20 20 15 10 5 0 0 1 2 3 4 5 6 7 8 QUANTITY (Phone cases) Marginal Revenue - Marginal Cost Iyana's profit is maximized when they produce a total of produce is $ ' an amount less phone cases. At this quantity, the marginal cost of the final phone case they than the price received for each phone case they sell. At this point, the marginal cost of producing one more phone case (the first phone case beyond the profit maximizing quantity) is $ an amount greater than the price received for each phone case they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the marginal cost and marginal revenue curves. Because Iyana is a price taker, the previous condition is equivalent to Profit = TR - TC

3. Profit maximization using total cost and total revenue curves Suppose Iyana operates a handicraft pop-up retail shop that sells phone cases. Assume a perfectly competitive market structure for phone cases with a market price equal to $20 per phone case. The following graph shows Iyana's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for phone cases for quantities zero through seven (including zero and seven) that Iyana produces. 200 TOTAL COST AND REVENUE (Dollars) 175 150 125 100 75 50 60 0 〇ロ O O -25 0 1 2 3 4 O O ☐ 5 QUANTITY (Phone cases) Total Cost ப 6 7 8 Total Revenue Profit ? Calculate Iyana's marginal revenue and marginal cost for the first seven phone cases they produce, 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 at each quantity. ? 40 40 35 50 30 COSTS AND REVENUE (Dollars per phone case) 25 25 20 20 15 10 5 0 0 1 2 3 4 5 6 7 8 QUANTITY (Phone cases) Marginal Revenue - Marginal Cost Iyana's profit is maximized when they produce a total of produce is $ ' an amount less phone cases. At this quantity, the marginal cost of the final phone case they than the price received for each phone case they sell. At this point, the marginal cost of producing one more phone case (the first phone case beyond the profit maximizing quantity) is $ an amount greater than the price received for each phone case they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the marginal cost and marginal revenue curves. Because Iyana is a price taker, the previous condition is equivalent to Profit = TR - TC

Principles of Economics 2e
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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3. Profit maximization using total cost and total revenue curves Suppose Iyana operates a handicraft pop-up retail shop that sells phone cases. Assume a perfectly competitive market structure for phone cases with a market price equal to $20 per phone case. The following graph shows Iyana's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for phone cases for quantities zero through seven (including zero and seven) that Iyana produces. 200 TOTAL COST AND REVENUE (Dollars) 175 150 125 100 75 50 60 0 〇ロ O O -25 0 1 2 3 4 O O ☐ 5 QUANTITY (Phone cases) Total Cost ப 6 7 8 Total Revenue Profit ?
Transcribed Image Text:3. Profit maximization using total cost and total revenue curves Suppose Iyana operates a handicraft pop-up retail shop that sells phone cases. Assume a perfectly competitive market structure for phone cases with a market price equal to $20 per phone case. The following graph shows Iyana's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for phone cases for quantities zero through seven (including zero and seven) that Iyana produces. 200 TOTAL COST AND REVENUE (Dollars) 175 150 125 100 75 50 60 0 〇ロ O O -25 0 1 2 3 4 O O ☐ 5 QUANTITY (Phone cases) Total Cost ப 6 7 8 Total Revenue Profit ?
Calculate Iyana's marginal revenue and marginal cost for the first seven phone cases they produce, 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 at each quantity. ? 40 40 35 50 30 COSTS AND REVENUE (Dollars per phone case) 25 25 20 20 15 10 5 0 0 1 2 3 4 5 6 7 8 QUANTITY (Phone cases) Marginal Revenue - Marginal Cost Iyana's profit is maximized when they produce a total of produce is $ ' an amount less phone cases. At this quantity, the marginal cost of the final phone case they than the price received for each phone case they sell. At this point, the marginal cost of producing one more phone case (the first phone case beyond the profit maximizing quantity) is $ an amount greater than the price received for each phone case they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the marginal cost and marginal revenue curves. Because Iyana is a price taker, the previous condition is equivalent to Profit = TR - TC
Transcribed Image Text:Calculate Iyana's marginal revenue and marginal cost for the first seven phone cases they produce, 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 at each quantity. ? 40 40 35 50 30 COSTS AND REVENUE (Dollars per phone case) 25 25 20 20 15 10 5 0 0 1 2 3 4 5 6 7 8 QUANTITY (Phone cases) Marginal Revenue - Marginal Cost Iyana's profit is maximized when they produce a total of produce is $ ' an amount less phone cases. At this quantity, the marginal cost of the final phone case they than the price received for each phone case they sell. At this point, the marginal cost of producing one more phone case (the first phone case beyond the profit maximizing quantity) is $ an amount greater than the price received for each phone case they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the marginal cost and marginal revenue curves. Because Iyana is a price taker, the previous condition is equivalent to Profit = TR - TC
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