Answered: Consider De Virtuose Cupcake, a cupcake…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 5PA

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2. Profit maximization of a seller in a competitive price-searchermarket

Consider De Virtuose Cupcake, a cupcake shop in a competitive price-searcher market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Assume that the shop is operating in the short run.

Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity. If the shop is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. If the shop is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss.

At the profit-maximizing output and price, the shop’s profit is equal to ---

Given the profit-maximizing choice of output and price, there are -- shops in the industry than there wwould be in long run equilibrium.

Please show me your work. Graph is attached as a picture.

Thanks,

Nasima

2. Profit maximization of a seller in a competitive price-searchermarket
Consider De Virtuose Cupcake, a cupcake shop in a competitive price-searcher market. The following graph shows its demand curve, marginal revenue
(MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Assume that the shop is operating in the short run.
Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity. If the shop is making a profit, use the green
rectangle (triangle symbols) to shade in the area representing its profit. If the shop is suffering a loss, use the purple rectangle (diamond symbols) to
shade in the area representing its loss.
4.00
3.50
Profit Maximizing Outcome
3.00
2.50
Profit
ATC
2.00
Loss
1.50
1.00
MC
0.50
Demand
MR
+
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
QUANTITY (Thousands of cupcakes)
At the profit-maximizing output and price, the shop's profit is equal to $
(Hint: Be sure to enter a minus sign if profit is negative.)
Given the profit-maximizing choice of output and price, there are
shops in the industry than there would be in long-run equilibrium.
PRICE (Dollars per cupcake)

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