Answered: Suppose Madison operates a handicraft…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. Profit maximization using total cost and total revenue curves

Suppose Madison operates a handicraft pop-up retail shop that sells rompers. Assume a perfectly competitive market structure for rompers with a market price equal to $20 per romper.

The following graph shows Madison's total cost curve.

(image work)

Madison's profit is maximized when they produce a total of _____ rompers. At this quantity, the marginal cost of the final romper they produce is $___, an amount (greater/less) than the price received for each romper they sell. At this point, the marginal cost of producing one more romper (the first romper beyond the profit-maximizing quantity) is $____, an amount (greater/less) than the price received for each romper they sell. Therefore, Madison's profit-maximizing quantity occurs at the point of intersection between the ___________ curves. Because Madison is a price taker, the previous condition is equivalent to ____.

Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for rompers for quantities zero through
seven (including zero and seven) that Madison produces.
TOTAL COST AND REVENUE (Dollars)
200
175
150
125
100
5
50
25
-25
0
0
1
☐
2
0
3
4 5
QUANTITY (Rompers)
6
Total Cost
7
8
Total Revenue
Profit
(?)

Calculate Madison's marginal revenue and marginal cost for the first seven rompers 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.
(?
COSTS AND REVENUE (Dollars per romper)
40
35
0
0
1
2
4
3
5
QUANTITY (Rompers)
6
7
8
Marginal Revenue
Marginal Cost

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A perfectly competitive firm is a price taker and can sell any quantity of the commodity at the market determined price.

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