Suppose Lucia runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a price-taker market, and the marketprice is $20 per teddy bear.The following graph shows Lucia'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 teddy bears that Luciaproduces, including zero teddy bears.(?)175150Total CostTotal Revenue125100Profit75-25-50478QUANTITY (Teddy bears)TOTAL COST AND REVENUE (Dollars) Calculate Lucia's marginal revenue and marginal cost for the first seven teddy bears she produces, and plot them on the following graph. Use the bluepoints (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost.3025Marginal Revenue20Marginal Cost15134678QUANTITY (Teddy bears)Lucia's profit is maximized when she producesteddy bears. When she does this, the marginal cost of the last teddy bear she produces is, which isthan the price Lucia receives for each teddy bear she sells. The marginal cost of producing an additional teddy bear(that is, one more teddy bear than would maximize her profit) is $which isthan the price Lucia receives for each teddy bearshe sells. Therefore, Lucia's profit-maximizing quantity corresponds to the intersection of thecurves.Because Lucia is a price taker, this last condition can also be written asCOSTS AND REVENUE (Dollars per teddy bear)

Suppose Lucia runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a price-taker market, and the market price is $20 per teddy bear. The following graph shows Lucia'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 teddy bears that Lucia produces, including zero teddy bears. 175 150 Total Cost Total Revenue 125 100 Profit 75 -25 -50 3 4 6. 7 8 QUANTITY (Teddy bears) TOTAL COST AND REVENUE (Dollars)

Suppose Lucia runs a small business that manufactures teddy bears. Assume that the market for teddy bears is a price-taker market, and the market price is $20 per teddy bear. The following graph shows Lucia'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 teddy bears that Lucia produces, including zero teddy bears. 175 150 Total Cost Total Revenue 125 100 Profit 75 -25 -50 3 4 6. 7 8 QUANTITY (Teddy bears) TOTAL COST AND REVENUE (Dollars)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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