(1) Because each dozen of sea shells costs $3.50, the additional revenue earned by selling one more dozen of sea shells is $3.50. This means Marginal Revenue (MR) = $3.50 Marginal cost (MC) is the additional cost incurred in procuring one dozen more sea shells. The marginal cost for different quantities given in the table are $1, $1.50, $1.50, $2, $2.50, $3.50. For a perfectly competitive firm, profit is maximized when MC = MR So, MC = MR = $3.50, and the corresponding quantity is 206 Answer: (C) 206 dozen sea shells by the sea shore per day

(2) Price elasticity of demand = |(Change in quantity/Average quantity) / (Change in price/Average price)| = |{(1300 - 1500)/1400}} / {(3.25 - 3)/3.125}| = |-1.786| = 1.786 Since price elasticity of demand > 1, the demand is elastic. Initial revenue = 1500 * $3 = $4500 Final revenue = 1300 * $3.25 = $4225 Thus, there is a decrease in the revenue Answer: (A) Elastic, Decreases