11. Profit maximization using total cost and total revenue curves

Suppose Kenji 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 Kenji'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 Kenji produces.

Module Five Quiz 200 175 Total Revenue 150 Total Cost A 125 Profit 100 TOTAL COST AND REVENUE (Dollars) 75 0 50 25 0 -25 2 5 6 7 1 QUANTITY (Shirts)40 O 35 Marginal Revenue 30 25 Marginal Cost COSTS AND REVENUE (Dollars per shirt) 20 15 10 0 2 3 4 5 7 QUANTITY (Shirts) Kenji's profit is maximized when he produces shirts. When he does this, the marginal cost of the last shirt he produces is $ , which is than the price Kenji receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize his profit) is $ , which is than the price Kenji receives for each shirt he sells. Therefore, Kenji's profit- maximizing quantity corresponds to the intersection of the curves. Because Kenji is a price taker, this last condition can also be written as