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Suppose Bob runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear. The following graph shows Bob's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 П ☐ 0 1 2 ☐ 3 4 5 QUANTITY (Teddy bears) ☐ Total Cost D 6 7 8 O Total Revenue Profit ?

Suppose Bob runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear. The following graph shows Bob's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 П ☐ 0 1 2 ☐ 3 4 5 QUANTITY (Teddy bears) ☐ Total Cost D 6 7 8 O Total Revenue Profit ?

Essentials of Economics (MindTap Course List)
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 4CQQ
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3. Profit maximization using total cost and total revenue curves Suppose Bob runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear. The following graph shows Bob's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 O ☐ ☐ 0 1 2 3 4 5 QUANTITY (Teddy bears) ☐ 6 Total Cost 7 8 O Total Revenue Profit ?
Transcribed Image Text:3. Profit maximization using total cost and total revenue curves Suppose Bob runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $25 per teddy bear. The following graph shows Bob's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Bob produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 50 25 0 -25 O ☐ ☐ 0 1 2 3 4 5 QUANTITY (Teddy bears) ☐ 6 Total Cost 7 8 O Total Revenue Profit ?
Calculate Bob's marginal revenue and marginal cost for the first seven teddy bears 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. COSTS AND REVENUE (Dollars per teddy bear) 40 30 5 0 1 2 3 4 5 QUANTITY (Teddy bears) 6 7 8 Marginal Revenue O Marginal Cost Bob's profit is maximized when he produces $ , which is teddy bears. When he does this, the marginal cost of the last teddy bear he produces is than the price Bob receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize his profit) is $ , which is than the price Bob receives for each teddy bear he curves. Because sells. Therefore, Bob's profit-maximizing quantity corresponds to the intersection of the Bob is a price taker, this last condition can also be written as
Transcribed Image Text:Calculate Bob's marginal revenue and marginal cost for the first seven teddy bears 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. COSTS AND REVENUE (Dollars per teddy bear) 40 30 5 0 1 2 3 4 5 QUANTITY (Teddy bears) 6 7 8 Marginal Revenue O Marginal Cost Bob's profit is maximized when he produces $ , which is teddy bears. When he does this, the marginal cost of the last teddy bear he produces is than the price Bob receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize his profit) is $ , which is than the price Bob receives for each teddy bear he curves. Because sells. Therefore, Bob's profit-maximizing quantity corresponds to the intersection of the Bob is a price taker, this last condition can also be written as
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