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Larry's profit is maximized when he produces shirts. When he does thisl the marginal cost of the last shirt he produces is 5 , which
Larry's profit is maximized when he produces shirts. When he does thisl the marginal cost of the last shirt he produces is 5 , which is V than the price Larry 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 3 , which is V than the price Larry receives for each shirt he sells. Therefore, Larry's prot-maximizing quantity corresponds to the intersection of the V curves. Because Larry is a price taker, this last condition Continue without saving can also be written as V . Asst # 7 (Ch 08) 2. Profit maximization using total cost and total revenue curves Suppose Larry runs a small business that manufactures shirts. Assume that the market for shirts is a perfectly competitive market, and the market price is $25 per shirt. The following graph shows Larry's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for the first seven shirts that Larry produces, including zero shirts. Note: Points will snap to the quantities of output as well as level of profit and revenue. (?) 200 175 O Total Revenue 150 Total Cost A 125 O Profit 100 TOTAL COST AND REVENUE (Dollars) 75 50 O 0 -25 0 2 3 5 6 7 8 QUANTITY (Shirts)Asst # 7 (Ch 08) Calculate Larry's marginal revenue and marginal cost For the First seven shirts 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. Note: Plot quantity values between the integers. For example, if Larry's marginal cost of increasing production from one shirt to two shirts is x, then you would plot a point at (1.5, x). Points will snap to the quantities of output as well as the level of cost and revenue. / \\ *3, 40 O 35 E Marginal Revenue .: g 30 a. n E E 25 Marginal Cost % z 20 LU > Lu DC 15 D z
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