Suppose Kevin runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $20 per teddy bear. The following graph shows Kevin'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 Kevin produces. Calculate Kevin'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. Kevin's profit is maximized when he produces _ teddy bears. When he does this, the marginal cost of the last teddy bear he produces is _ , which is (greater/less) than the price Kevin 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 (greater/less) than the price Kevin receives for each teddy bear he sells. Therefore, Kevin's profit-maximizing quantity corresponds to the intersection of the (Total cost & Marginal Revenue/ Marginal cost & total revenue/ total cost & profit/ total revenue & profit/ marginal cost & marginal revenue/ total cost & total revenue) curves. Because Kevin is a price taker, this last condition can also be written as (Profit=TR-TC / Profit=MR-MC / P=MC / MC=TR / TC=TR ).

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 39P: The AAA Aquarium Co. sells aquariums for 20 each. Fixed costs of production are 20. The total...

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Suppose Kevin runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market price is $20 per teddy bear.

The following graph shows Kevin'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 Kevin produces.

Calculate Kevin'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.

Kevin's profit is maximized when he produces ___ teddy bears. When he does this, the marginal cost of the last teddy bear he produces is ___ , which is (greater/less) than the price Kevin 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 (greater/less) than the price Kevin receives for each teddy bear he sells. Therefore, Kevin's profit-maximizing quantity corresponds to the intersection of the (Total cost & Marginal Revenue/ Marginal cost & total revenue/ total cost & profit/ total revenue & profit/ marginal cost & marginal revenue/ total cost & total revenue) curves. Because Kevin is a price taker, this last condition can also be written as (Profit=TR-TC / Profit=MR-MC / P=MC / MC=TR / TC=TR ).

3. Profit maximization using total cost and total revenue curves
Suppose Kevin runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a competitive market, and the market
price is $20 per teddy bear.
The following graph shows Kevin'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 Kevin produces.
(?
200
175
Total Revenue
150
Total Cost
125
Profit
100
75
50
-25
2
3
4
5
6
7
8
QUANTITY (Teddy bears)
Calculate Kevin'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.
TOTAL COST AND REVENUE (Dollars)

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