Question

find the values missing from the table below, and then create two (2) graphs for an individual price-taking firm that produces t-shirts, utilizing both the Marginal Revenue/Marginal Cost approach and the Total Revenue/Total Cost approach.

The graphs should depict the effect of a change in consumer demographics that increases demand for hairnets and increases the market price to $24.

1. Create a graph (Graph 1) showing the starting conditions using the Marginal Revenue/Marginal Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for marginal cost, average total cost, average variable cost, demand, and marginal revenue.
• Do NOT include curves for total revenue, total cost, or total variable cost on this graph.

2. Create a graph (Graph 2) next to your first graph showing the starting conditions using the Total Revenue/Total Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for total cost and total revenue.
• Do NOT include curves for marginal cost, average total cost, average variable cost, demand, or marginal revenue on this graph.

3. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Marginal Revenue/Marginal Cost Approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and market price on your graph.

4. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and initial Total Revenue and Total Cost at that quantity.

5. On Graph 1, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

6. On Graph 2, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

7. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the new profit-maximizing quantity and market price.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and market price on your graph.

8. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the new profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and new Total Revenue and/or Total Cost at that quantity.

Output (q)	TFC	TVC	TC	MC	ATC	AVC	Price 1	MR1	TR1	MR2	TR2
0	50	0	50	-----	-----	-----	19	---		---
1			65				19
2		25		10	37.5	12.5	19
3			84				19
4		42		8	23	10.5	19
5			102				19
6		64		12	19	10.67	19
7			129				19
8		98		19	18.5	12.25	19
9			172				19
10		152		30	20.2	15.2	19

Answer 1

Answering first four parts of the question:-

Output	TFC	TVC	TC	MC	ATC	AVC	Price	MR	TR	Profit
0	50	0	50	-	-	-	19	-	-	-50
1	50	15	65	15	65	15	19	19	19	-46
2	50	25	75	10	37.5	12.5	19	19	38	-37
3	50	34	84	9	28	11.33	19	19	57	-27
4	50	42	92	8	23	10.5	19	19	76	-16
5	50	52	102	10	20.4	10.4	19	19	95	-7
6	50	64	114	12	19	10.67	19	19	114	0
7	50	79	129	15	18.43	11.29	19	19	133	4
8	50	98	148	19	18.5	12.25	19	19	152	4
9	50	122	172	24	19.11	13.56	19	19	171	-1
10	50	152	202	30	20.2	15.2	19	19	190	-12

1)

2)

3)

The optimal output for the firm is the point where the marginal cost curve intersects the marginal revenue curve that is 8 unit. At this equilibrium level the profit for the form is $4.

4)

The optimal level of output is the point where the difference between the total revenue curve and the total cost curve is the highest which is at 8 units. At this equilibrium level the profit earned by the firm is Dollar 4