3. Profit maximization using total cost and total revenue curvesSuppose Simone runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and themarket price is $20 per teddy bear.The following graph shows Simone'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 teddy bears thatSimone produces, including zero teddy bears.200175Total Revenue150125Total CostProfit100755025-2513478QUANTITY (Teddy bears)TOTAL COST AND REVENUE (Dollars) Calculate Simone's marginal revenue and marginal cost for the first seven teddy bears she produces, and plot them on the following graph. Use theblue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost.4035Marginal Revenue3025Marginal Cost20151014678QUANTITY (Teddy bears)Simone's profit is maximized when she producesteddy bears. When she does this, the marginal cost of the last teddy bear she produces iswhich isthan the price Simone receives for each teddy bear she sells. The marginal cost of producing an additional teddybear (that is, one more teddy bear than would maximize her profit) is $which isthan the price Simone receives for each teddybear she sells. Therefore, Simone's profit-maximizing quantity corresponds to the intersection of thecurves. Because Simone is a price taker, this last condition can also be written asCOSTS AND REVENUE (Dollars per teddy bear)

Perfect competition is the one where there are infinite number of buyers and sellers, and earn zero…

Simone's profit is maximized when she produces |teddy bears. When she does this, the marginal cost of the last teddy bear she produces is J, which is bear (that is, one more teddy bear than would maximize her profit) is S than the price Simone receives for each teddy bear she sells. The marginal cost of producing an additional teddy , which is than the price Simone receives for each teddy bear she sells. Therefore, Simone's profit-maximizing quantity corresponds to the intersection of the curves. Because Simone is a price taker, this last condition can also be written as

Simone's profit is maximized when she produces |teddy bears. When she does this, the marginal cost of the last teddy bear she produces is J, which is bear (that is, one more teddy bear than would maximize her profit) is S than the price Simone receives for each teddy bear she sells. The marginal cost of producing an additional teddy , which is than the price Simone receives for each teddy bear she sells. Therefore, Simone's profit-maximizing quantity corresponds to the intersection of the curves. Because Simone is a price taker, this last condition can also be written as

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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