Sport Tee Corporation manufactures T-shirts bearing the logos of professional football teams. The wholesale market for sport T-shirts is perfectly competitive. The manager forecasts the wholesale price of T-shirts next year to be $7.00. The firm's estimated marginal cost is where Q is the number of T-shirts produced and sold each month. Sport Tee Corporation will have a fixed cost of $2,000 per month.
1. Given the estimated marginal cost function above, write the equation for the average variable cost function and the total variable cost function.
2. What is the profit-maximizing number of T-shirts that Sport Tee should produce and sell each month? (Note: you will find 2 output levels that are solutions to your optimization problem. Test which one is actually the optimal level of output).
3. How much monthly profit (or loss) will Sport Tee Corporation earn?