Suppose Musashi runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is$25 per shirt.The following graph shows Musashi'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 Musashi produces.200175Total Revenue150Total Cost125Profit100755025-251237QUANTITY (Shirts)TOTAL COST AND REVENUE (Dollars)co Calculate Musashi's marginal revenue and marginal cost for the first seven shirts 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.4035Marginal Revenue3025Marginal Cost20151013 427QUANTITY (Shirts)Musashi's profit is maximized when he produces|shirts. When he does this, the marginal cost of the last shirt he produces is Swhichisthan the price Musashi receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt thanwould maximize his profit) is Swhich isthan the price Musashi receives for each shirt he sells. Therefore, Musashi's profit-maximizing quantity corresponds to the intersection of thecurves. Because Musashi is a price taker, thislast condition can also be written asCOSTS AND REVENUE (Dollars per shirt)

Key Points: Before proceeding, it is necessary to note that the given condition is of a perfectly…

|shirts. When he does this, the marginal cost of the last shirt he produces is s Musashi's profit is maximized when he produces is would maximize his profit) is S which than the price Musashi receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than which is than the price Musashi receives for each shirt he sells. Therefore, Musashi's profit- maximizing quantity corresponds to the intersection of the curves. Because Musashi is a price taker, this last condition can also be written as

|shirts. When he does this, the marginal cost of the last shirt he produces is s Musashi's profit is maximized when he produces is would maximize his profit) is S which than the price Musashi receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than which is than the price Musashi receives for each shirt he sells. Therefore, Musashi's profit- maximizing quantity corresponds to the intersection of the curves. Because Musashi is a price taker, this last condition can also be written as

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.1P

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