3. Dave raises puppies in his home in suburban Minneapolis and sells them for $450 each. He has no fixed costs; his marginal costs of production are given below.

No. of Puppies Marginal Cost to Dave Social Marginal Cost

1 $100 275

2 $200 375

3 $300 475

4 $400 575

5 $500 675

6 $600 775

7 $700 875

The problem is that Dave's neighbors don't want to live around so many puppies. In fact, they suffer $175 worth of damage from each dog Dave raises.

A. If Dave is free to raise as many puppies as he likes, how many will he want to raise? Draw a graph showing Dave's marginal cost and marginal revenue from raising puppies. Indicate on your graph and explain in words how many puppies Dave will raise. (4 points) ##