Suppose she 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.

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Chapter8: Perfect Competition
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Problem 40P: Perfectly competitive firm Doggies Paradise Inc. sells winter coats for dogs. Dog coats sell for 72...
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Suppose she 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.

 

 

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 Eileen produces.
TOTAL COST AND REVENUE (Dollars)
200
COSTS AND REVENUE (Dolars per teddy bear)
175
150
125
100
75
50
0
-25
40
35
30
25
20
15
5
0
Calculate Eileen's marginal revenue and marginal cost for the first seven teddy bears she 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.
0
1
0
2
1
4
5
QUANT
QUANTITY (Teddy bears)
2
6
3
4
5
QUANTITY (Teddy bears)
Tatal Cast
6
7
Tatal Revenue
7
Profit
Marginal Revenue
O
Marginal Cost
Eileen's profit is maximized when she produces
teddy bears. When she does this, the marginal cost of the last teddy bear she produces is
, which is
than the price Eileen receives for each teddy bear she sells. The marginal cost of producing an additional teddy bear
(that is, one more teddy bear than would maximize her profit) is $ , which is
than the price Eileen receives for each teddy bear
she sells. Therefore, Eileen's profit-maximizing quantity corresponds to the intersection of the
Because Eileen is a price taker, this last condition can also be written as
curves.
Transcribed Image Text: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 Eileen produces. TOTAL COST AND REVENUE (Dollars) 200 COSTS AND REVENUE (Dolars per teddy bear) 175 150 125 100 75 50 0 -25 40 35 30 25 20 15 5 0 Calculate Eileen's marginal revenue and marginal cost for the first seven teddy bears she 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. 0 1 0 2 1 4 5 QUANT QUANTITY (Teddy bears) 2 6 3 4 5 QUANTITY (Teddy bears) Tatal Cast 6 7 Tatal Revenue 7 Profit Marginal Revenue O Marginal Cost Eileen's profit is maximized when she produces teddy bears. When she does this, the marginal cost of the last teddy bear she produces is , which is than the price Eileen receives for each teddy bear she sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize her profit) is $ , which is than the price Eileen receives for each teddy bear she sells. Therefore, Eileen's profit-maximizing quantity corresponds to the intersection of the Because Eileen is a price taker, this last condition can also be written as curves.
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