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$3.$ Profit maximization using total cost and total revenue curves

Suppose Musashi runs a small business that manufactures shirts. Assume that the market for shirts is a perfectly competitive market, and the market price is $\backslash (\backslash$$ $25\backslash )$ per shirt.

The following graph shows Musashi'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 Musashi produces, including zero shirts. Calculate Musashi'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: Be sure to plot marginal values between the appropriate whole unit values. For instance, plot values at $\backslash (0\mathrm{.}5,1\mathrm{.}5\backslash ),$ and so on$.$

Musashi's profit is maximized when he produces

shirts. When he does this, the marginal cost of the last shirt he produces is $[$

$,$ which

is

$\backslash (\backslash$qquad $\backslash )$ than the price Musashi 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 $[$ which is than the price Musashi receives for each shirt he sells. Therefore, Musashi's profit$-$

maximizing quantity corresponds to the intersection of $\backslash ($ t $\backslash )$ th

curves. Because Musashi is a price taker, this

last condition can also be written as

$-$