Suppose Larry 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 Larry'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 Larry produces, including zero shirts. 125 100 TOTAL COST AND REVENUE (Dollars) 25 ☐ Total Cost ☐ -50 0 1 2 3 4 5 6 7 8 QUANTITY (Shirts) Total Revenue A Profit (?) Calculate Larry's marginal revenue and marginal cost for the first seven shirts he 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. 25 2 COSTS AND REVENUE (Dollars per shirt) 0 1 2 3 5 6 7 8 QUANTITY (Shirts) Marginal Revenue Marginal Cost Larry's profit is maximized when he produces is shirts. When he does this, the marginal cost of the previous shirt he produces is $ which than the price Larry receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize his profit) is s than the price Larry receives for each shirt he sells. Therefore, Larry's profit-maximizing which is quantity corresponds to the intersection of the curves. Because Larry is a price taker, this last condition can also be written as
Suppose Larry 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 Larry'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 Larry produces, including zero shirts. 125 100 TOTAL COST AND REVENUE (Dollars) 25 ☐ Total Cost ☐ -50 0 1 2 3 4 5 6 7 8 QUANTITY (Shirts) Total Revenue A Profit (?) Calculate Larry's marginal revenue and marginal cost for the first seven shirts he 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. 25 2 COSTS AND REVENUE (Dollars per shirt) 0 1 2 3 5 6 7 8 QUANTITY (Shirts) Marginal Revenue Marginal Cost Larry's profit is maximized when he produces is shirts. When he does this, the marginal cost of the previous shirt he produces is $ which than the price Larry receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize his profit) is s than the price Larry receives for each shirt he sells. Therefore, Larry's profit-maximizing which is quantity corresponds to the intersection of the curves. Because Larry is a price taker, this last condition can also be written as
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose Larry 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 Larry'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 Larry
produces, including zero shirts.
125
100
TOTAL COST AND REVENUE (Dollars)
25
☐
Total Cost
☐
-50
0
1
2
3
4
5
6
7
8
QUANTITY (Shirts)
Total Revenue
A
Profit
(?)
Calculate Larry's marginal revenue and marginal cost for the first seven shirts he 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.
25
2
COSTS AND REVENUE (Dollars per shirt)
0
1
2
3
5
6
7
8
QUANTITY (Shirts)
Marginal Revenue
Marginal Cost
Larry's profit is maximized when he produces
is
shirts. When he does this, the marginal cost of the previous shirt he produces is $
which
than the price Larry receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than
would maximize his profit) is s
than the price Larry receives for each shirt he sells. Therefore, Larry's profit-maximizing
which is
quantity corresponds to the intersection of the
curves. Because Larry is a price taker, this last condition
can also be written as
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