lars) TOTAL COST AND REVENUE (Dolars) + + Use the blue points (circle symbol) to plot total revenue and the green points (triangle symbol) to plot profit for teddy bears quantities zero through seven (inclusive) that Megan produces. 200 175 Total Revenue 150 Total Cost 125 Profit 100 75 50 25 25 1 5 QUANTITY (Teddy bears) COSTS AND REVENUE (Dollars per teddy bear) Calculate Megan's marginal revenue and marginal cost for the first seven teddy bears she 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 at each quantity. 40 Marginal Revenue — 25 Marginal Cost 20 15 10 1 2 3 5 QUANTITY (Teddy bears) Megan's profit is maximized when she produces teddy bears. When she does this, the marginal cost of the last teddy bear she produces is S which is than the price Megan 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 S which is than the price Megan receives for each teddy bear she sells. Therefore, Megan's profit-maximizing quantity corresponds to the intersection of the curves. Because Megan is a price taker, this last condition can also be written as

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