Suppose Eleanor runs a small business that manufactures frying pans. Assume that the market for frying pans is a competitive market, and the market price is $25 per frying pan.

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 frying pans quantities zero through seven (inclusive) that Eleanor produces.

Total RevenueProfit0123456782001751501251007550250-25TOTAL COST AND REVENUE (Dollars)QUANTITY (Frying pans)Total CostCalculate Eleanor's marginal revenue and marginal cost for the first seven frying pans 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.

Marginal RevenueMarginal Cost0123456784035302520151050COSTS AND REVENUE (Dollars per frying pan)QUANTITY (Frying pans)Eleanor's profit is maximized when she produces

frying pans. When she does this, the marginal cost of the last frying pan she produces is

, which is than the price Eleanor receives for each frying pan she sells. The marginal cost of producing an additional frying pan (that is, one more frying pan than would maximize her profit) is

, which is than the price Eleanor receives for each frying pan she sells. Therefore, Eleanor's profit-maximizing quantity corresponds to the intersection of the curves. Because Eleanor is a price taker, this last condition can also be written as .