Question

Gilberto's profit is maximized when he produces 3 shirts. When he does this, the marginal cost of the previous shirt he produces is $10 , which isless than the price Gilberto 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 isgreater than the price Gilberto receives for each shirt he sells. Therefore, Gilberto's profit-maximizing quantity corresponds to the intersection of themarginal cost and marginal revenue curves. Because Gilberto is a price taker, this last condition can also be written as P=MC .

Answer 1

The subject is profit maximization for firms in different market structures, with a focus on the profit maximization condition where marginal revenue (MR) equals marginal cost (MC) for both perfectly competitive firms and monopolies. The economic profit depends on the price in relation to the average total cost.

Step-by-step explanation:

The student's question pertains to profit maximization in the context of a perfectly competitive market. Gilberto represents a firm in such a market structure where he is a price taker. Profit maximization occurs when a firm produces up to the point where the marginal cost (MC) equals the marginal revenue (MR), which, for a perfectly competitive firm, is the same as the market price (P). It is crucial for profits that this condition coincides with a scenario where P is above the average total cost (ATC), as this indicates a positive profit margin. If P < ATC, the firm would experience losses, albeit it might still produce in the short term to cover some of its fixed costs.

For a monopoly, the profit maximization rule is also to produce where MR = MC. However, a monopoly's MR is not equal to P due to the downward-sloping demand curve for its single-product offering. The MR and MC curves intersect at the quantity and price that will maximize the monopoly's profit.

In both competitive and monopolistic markets, the profit maximization rule of MR = MC aids in determining the optimal quantity of production. The actual economic profit, however, is contingent upon the relationship between price and average total cost. This can be visually represented by the intersection points of the demand, MC, and ATC curves on a graph.

Answer 2

Step-by-step explanation:

Profit is maximized at the production point of four tops. The disparity in net income and net expenditure is highest in this amount.

Another way of talking about this is to note that for the first 4 shirts that Gilberto makes, the marginal cost (MC) of making each shirt is smaller than the total revenue (MR) it generates from selling the shirt.

Beyond just the third shirt he makes per hour, the total cost of making the shirt is higher than the amount Gilberto receives; thus, opting to manufacture more than 4 shirts decreases Darnell's benefit.