Suppose Madison operates a handicraft pop-up retail shop that sells cardigans. Assume a perfectly competitive market structure for cardigans with a market price equal to $25 per cardigan. The following graph shows Madison's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for cardigans for quantities zero through seven (including zero and seven) that Madison produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 25 0 -25 ☐ 0 1 0 2 ☐ 4 ■ 3 5 QUANTITY (Cardigans) ■ 6 Total Cost 7 8 Total Revenue Profit ?

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3. Profit maximization using total cost and total revenue curves
Suppose Madison operates a handicraft pop-up retail shop that sells cardigans. Assume a perfectly competitive market structure for cardigans with a
market price equal to $25 per cardigan.
The following graph shows Madison's total cost curve.
Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for cardigans for quantities zero through
seven (including zero and seven) that Madison produces.
TOTAL COST AND REVENUE (Dollars)
200
175
150
125
100
75
-25
0
0
1
0
2
U
3
5
QUANTITY (Cardigans)
4
6
Total Cost
7
8
。
Total Revenue
▷
Profit
Transcribed Image Text:3. Profit maximization using total cost and total revenue curves Suppose Madison operates a handicraft pop-up retail shop that sells cardigans. Assume a perfectly competitive market structure for cardigans with a market price equal to $25 per cardigan. The following graph shows Madison's total cost curve. Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for cardigans for quantities zero through seven (including zero and seven) that Madison produces. TOTAL COST AND REVENUE (Dollars) 200 175 150 125 100 75 -25 0 0 1 0 2 U 3 5 QUANTITY (Cardigans) 4 6 Total Cost 7 8 。 Total Revenue ▷ Profit
Calculate Madison's marginal revenue and marginal cost for the first seven cardigans they produce, 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.
40
35
COSTS AND REVENUE (Dollars per cardigan)
8
$
30
20
0
0
1
7
2
3
5
QUANTITY (Cardigans)
an amount
4
6
Madison's profit is maximized when they produce a total of
7
8
Marginal Revenue
Marginal Cost
cardigans. At this quantity, the marginal cost of the final cardigan they produce is
than the price received for each cardigan they sell. At this point, the marginal cost of producing one more
an amount
than the price received for each cardigan
I
cardigan (the first cardigan beyond the profit maximizing quantity) is $
they sell. Therefore, Madison's profit-maximizing quantity occurs at the point of intersection between the
curves. Because Madison is a price taker, the previous condition is equivalent to
Transcribed Image Text:Calculate Madison's marginal revenue and marginal cost for the first seven cardigans they produce, 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. 40 35 COSTS AND REVENUE (Dollars per cardigan) 8 $ 30 20 0 0 1 7 2 3 5 QUANTITY (Cardigans) an amount 4 6 Madison's profit is maximized when they produce a total of 7 8 Marginal Revenue Marginal Cost cardigans. At this quantity, the marginal cost of the final cardigan they produce is than the price received for each cardigan they sell. At this point, the marginal cost of producing one more an amount than the price received for each cardigan I cardigan (the first cardigan beyond the profit maximizing quantity) is $ they sell. Therefore, Madison's profit-maximizing quantity occurs at the point of intersection between the curves. Because Madison is a price taker, the previous condition is equivalent to
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