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
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text: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 T
100
75
0
-50
30
20
15
0
1
0
2
1
3
4
5
QUANTITY (Shirts)
2
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.
3
5
QUANTITY (Shirts)
4
П
6
Total Cost
☐
6
7
-O
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
Total Revenue
Profit
-O
(?)
Marginal Revenue
-0-
Marginal Cost
(?)
shirts. When she does this, the marginal cost of the last shirt she produces is $
than the price Sharon receives 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
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