3. Profit maximization using total cost and total revenue curvesSuppose Bob runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the marketprice is $25 per teddy bear.The following graph shows Bob's total cost curve.Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero throughseven (inclusive) that Bob produces.TOTAL COST AND REVENUE (Dollars)2001751501251007550250-25O☐☐0 1 2345QUANTITY (Teddy bears)☐6Total Cost78OTotal RevenueProfit? Calculate Bob's marginal revenue and marginal cost for the first seven teddy bears he produces, and plot them on the following graph. Use the bluepoints (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost at each quantity.COSTS AND REVENUE (Dollars per teddy bear)40305012345QUANTITY (Teddy bears)678Marginal RevenueOMarginal CostBob's profit is maximized when he produces$, which isteddy bears. When he does this, the marginal cost of the last teddy bear he produces isthan the price Bob 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 isthan the price Bob receives for each teddy bear hecurves. Becausesells. Therefore, Bob's profit-maximizing quantity corresponds to the intersection of theBob is a price taker, this last condition can also be written as

Suppose Bob 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 Bob'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 Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 П ☐ 0 1 2 ☐ 3 4 5 QUANTITY (Teddy bears) ☐ Total Cost D 6 7 8 O Total Revenue Profit ?

Suppose Bob 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 Bob'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 Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 П ☐ 0 1 2 ☐ 3 4 5 QUANTITY (Teddy bears) ☐ Total Cost D 6 7 8 O Total Revenue Profit ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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