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product: Smoothie Market: Monopolistic Competition Price:$5.00 

 

Lesson Summary POTATOES Create a Graph Businesses will set prices at a level that exceeds the costs of production in order to earn a profit. However, simply setting prices higher than costs may not reveal the most efficient use of resources. Marginal cost analysis is a tool business owners use to determine the most efficient price and output. Producing where marginal cost is closest to marginal revenue without exceeding it will maximize the firm's profits. A graph can be used to illustrate the relationship between marginal revenue and marginal cost and identify where the two intersect. For this assignment, you will produce a marginal cost analysis graph and answer some questions. Steps 1. Select a product. It can be real or made up. Give your good or service a name and a price in U.S. dollars. Identify the market type for your product (pure/perfect competition, monopolistic competition, oligopoly, monopoly). 2. Draw a marginal analysis graph. Title it the market for the product you chose. Label the axes, the marginal cost curve (MC), the marginal revenue curve (MR), and the profit-maximizing quantity (Qpm). You do not need to use real numbers. O 3. Answer the reflection questions in complete sentences: o What is your product and its price? What type of market does your product exist in? Why is the marginal cost curve the same basic shape, no matter the product? At the profit-maximizing quantity, is the price of your product equal to, higher than, or lower than marginal cost? Explain. o Assume Qpm is 100 units. What is your total revenue? o Why would an already-successful business owner conduct a marginal cost analysis for their product? 4. Submit your work. This includes your graph image file and separate text responses to the questions.