11. Profit maximization using total cost and total revenue curves Suppose Eleanor runs a small business that manufactures shirts. Assume that the market for shirts is a competitive market, arid the market price is $25 per shirt. The following graph shows Eleanor'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 Eleanor produces. 200 O 175 Total Revenue 150 Total Cost A 125 Profit 100 TOTAL COST AND REVENUE (Dollars) 75 50 25 -25 1 2 3 4 5 6 7 8 QUANTITY (Shirts)Calculate Eleanor'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. 40 O 35 Marginal Revenue 30 25 Marginal Cost 20 COSTS AND REVENUE (Dollars per shirt) 15 10 5 0 0 1 2 3 4 5 6 7 8 QUANTITY (Shirts)Eleanor's profit is maximized when she produces C] shirts. When she does this, the marginal cost of the last shirt she produces is , which is E'EE'E'I'E\" V than the price Eleanor 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 greaterlless '7 than the price Eleanor receives for each shirt she sells. Therefore, Eleanor's profit-maximizing quantity corresponds to the intersection of the V curves. Because Eleanor is a price taker, this last condition can also be written as V . total revenue and profit Profit : MR 7 MC total cost and profit Profit : TR 7 TC marginal cost and marginal revenue P : MC total cost and total revenue MC : TR marginal cost and total revenue TC : TR total cost and marginal revenue