Question
In: Economics
3. Profit maximization using total cost and total revenue curves Suppose Ana runs a small business...
3. Profit maximization using total cost and total revenue curves
Suppose Ana runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $20 per shirt.
The following graph shows Ana's total cost curve.
Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Ana produces.
Calculate Ana's marginal revenue and marginal cost for the first seven shirts 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.
Ana's profit is maximized when she producesshirts. When she does this, the marginal cost of the last shirt she produces is, which is (less or greater) than the price Ana receives for each shirt she sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize her profit) is, which is (Greater or less) than the price Ana receives for each shirt she sells. Therefore, Ana's profit-maximizing quantity corresponds to the intersection of the curves. Because Ana is a price taker, this last condition can also be written as .
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
3. Profit maximization using total cost and total revenue curves Suppose Darnell runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the mar...
3. Profit maximization using total cost and total revenue curves Suppose Darnell runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, and the market price is $20 per shirt. The following graph shows Darnell's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for shirts quantities zero through seven (inclusive) that Darnell produces. Calculate Darnell's marginal revenue and marginal cost for the first...
A. Why is the equality of marginal revenue and marginal cost essential for profit maximization in...
A. Why is the equality of marginal revenue and marginal cost
essential for profit maximization in all market structures?
B. Explain why price can be substituted for marginal revenue in
the MR=MC rule when an industry is purely competitive
Consider a fishery characterized by the following total cost (TC) and total revenue (TR) curves as...
Consider a fishery characterized by the following total cost
(TC) and total revenue (TR) curves as a function of total effort
(E): TC = 12E and TR = 32E – E 2 , Differentiating these functions
yields the marginal cost (MC) and marginal revenue (MR) curves: MC
= 12 and MR = 32 – 2E.
a. Draw a graph depicting total costs and total revenues as a
function of effort in the fishery. At what effort level are total
revenues...
Complete Table 1 by computing the Total Revenue, Marginal Revenue, Total Cost, and Profit columns, each...
Complete Table 1 by computing the Total Revenue, Marginal
Revenue, Total Cost, and Profit columns, each rounded to two
decimal places. The cost of duplicating a video on a DVD and
mailing the DVD, the Marginal Cost, is $5.56. (1 point)
Table 1
Suggested Donation per DVD Request
Anticipated Number of DVD Requests
Total Revenue
Marginal Revenue
Total Cost
Profit
$19.00
0
$15.00
2
$9.50
5
$7.75
9
$3.00
15
$0.00
24
b. The President wants the GSTCG to provide...
Complete Table 1 by computing the Total Revenue, Marginal Revenue, Total Cost, and Profit columns, each...
Complete Table 1 by computing the Total Revenue, Marginal
Revenue, Total Cost, and Profit columns, each rounded to two
decimal places. The cost of duplicating a video on a DVD and
mailing the DVD, the Marginal Cost, is $5.56. (1 point)
Suggested Donation per DVD Request
Anticipated Number of DVD Requests
Total Revenue
Marginal Revenue
Total Cost
Profit
$19.00
0
$15.00
2
$9.50
5
$7.75
9
$3.00
15
$0.00
24
The President wants the GSTCG to provide videos to generate...
8. Discuss the rationale behind the principle “marginal revenue equal marginal cost" condition for profit maximization.
8. Discuss the rationale behind the principle “marginal
revenue equal marginal cost" condition for profit
maximization.
1. Explain the concept of profit maximization when the marginal revenue equals marginal cost 2. Differentiate:...
1. Explain the concept of profit maximization when the
marginal revenue equals marginal cost
2. Differentiate: Average Fixed Cost, Average Variable
Cost, and Average Total Cost
Question 2 2.1. Using average and marginal cost curves and average and marginal revenue curves show...
Question 2
2.1.
Using average and marginal cost curves and
average and marginal revenue curves show a firm in a perfectly
competitive market in short run making and
maximising its profit. (Draw a diagram and explain it.)
2.2.
Using average and marginal cost curves show
a firm in a monopolistically
competitive market making a loss whilst simultaneously behaving
rationally in the
short run. (Draw a diagram and explain it.)
2.3. Explain
the Prisoner’s Dilemma. (You can use a pay-off matrix...
Carefully draw the appropriate revenue and cost curves for a profit-maximizing monopolist, which is indifferent between...
Carefully draw the appropriate revenue and cost curves for a
profit-maximizing monopolist, which is indifferent between
producing and not producing in the short-run. Show the
deadweight loss caused by the monopoly. In the long run,
will the firm produce more or less? (8 points)
14. Consider a monopoly facing the following demand, marginal revenue, total cost, and marginal cost curves:...
14.
Consider a monopoly facing the following demand, marginal revenue,
total cost, and marginal cost curves:
Demand curve: P = 12 – 0.002 Q
Marginal revenue curve: MR = 12 – 0.004 Q
Total cost curve: TC = 3Q +0.0005Q2
Marginal cost curve: MC = 3 + 0.001 Q
a. Calculate the profit maximizing output of this monopoly.
Briefly explain your answer.
b. What is the socially efficient output level? Briefly explain
your answer.
c. Suppose the government wants to...
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