3. Profit maximization using total cost and total revenue curves Suppose Clancy runs a small business that manufactures frying pans. Assume that the market for frying pans is a competitive market, and the market price is $20 per frying pan. The following graph shows Clancy's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for frying pans quantities zero through seven (inclusive) that Clancy produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 Total Revenue Total Cost Profit 100 75 50 25 (?) TOTAL COS 50 25 -25 0 1 2 3 4 5 QUANTITY (Frying pans) 6 7 8 Calculate Clancy's marginal revenue and marginal cost for the first seven frying pans he 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. REVENUE (Dollars per frying pan) 40 40 35 30 25 Marginal Revenue Marginal Cost 20 15 COSTS AND REVENUE (Dollars per frying p 25 20 15 10 5 0 2 3 4 5 6 7 8 QUANTITY (Frying pans) Marginal Revenue Marginal Cost Clancy's profit is maximized when he produces $ , which is, frying pans. When he does this, the marginal cost of the last frying pan he produces is than the price Clancy receives for each frying pan he sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximize his profit) is $ , which is than the price Clancy receives for each frying pan he sells. Therefore, Clancy's profit-maximizing quantity corresponds to the intersection of the Because Clancy is a price taker, this last condition can also be written as curves. Grade It Now Save & Continue Continue without saving