Suppose Lorenzo 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 Lorenzo'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 Lorenzo produces. 200 175 Total Revenue 150 125 Total Cost Profit 100 75 50 25 -25 1 2 7 8 QUANTITY (Teddy bears) TOTAL COST AND REVENUE (Dollars)

Suppose Lorenzo 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 Lorenzo'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 Lorenzo produces. 200 175 Total Revenue 150 125 Total Cost Profit 100 75 50 25 -25 1 2 7 8 QUANTITY (Teddy bears) TOTAL COST AND REVENUE (Dollars)

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Firms In Competitive Markets

Section: Chapter Questions

Problem 10PA

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Explain how the profit-maximizing rule of setting P=MC leads a perfectly competitive market to be allocatively efficient.
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