Question

 3. Profit maximization using total cost and total revenue curves

 Suppose Darnell runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $20 per shirt.

 The following graph shows Darnell's total cost curve.

 Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Darnell produces.

 Calculate Darnell'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 at each quantity.

 Darnell's profit is maximized when he produces _______  shirts. When he does this, the marginal cost of the last shirt he produces is _______ , which is_______  than the price Darnell 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 _______  . which is _______  than the price Darnell receives for each shirt he sells. Therefore, Darnell's profit- maximizing quantity corresponds to the intersection of the ______________  curves. Because Darnell is a price taker, this last condition can also be written as _______ .

Answer 1

Q	TC	TR	Profit	MC	MR
0	10	0	-10
1	15	20	5	5	20
2	20	40	20	5	20
3	30	60	30	10	20
4	45	80	35	15	20
5	70	100	30	25	20
6	100	120	20	30	20
7	135	140	5	35	20

Blanks:

1- 4

2- 15

3-Less

4- 25

5- More

6- MC=MR

7-P=MC