Costs of Production and Profit Maximization Analysis for the Perfect Co
Total
Output/h
r
0
1
2
3
4
5
6
7
8
9
10
11
Total
fixed
Cost
(TFC)
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
Total
Variable
Total
Cost
Cost
(TVC)
(TC)
$0
$10
7
$17
10
$20
12
$22
13
$23
15
$25
18
$28
22
$32
27
$37
33
$43
40
$50
48
$58
Average Average Average
fixed
Variable
Total
Marginal
cost
cost
Cost
Cost
(AFC)
(AVC)
(ATC)
(MC)
0
0
0
7
10.00
7.00
17.00
3
5.00
5.00
10.00
2
3.33
4.00
7.33
1
2.50
3.25
5.75
2
2.00
3.00
5.00
3
1.67
3.00
4.67
4
1.43
3.14
4.57
5
1.25
3.38
4.63
6
1.11
3.67
4.78
7
1.00
4.00
5.00
8
0.91
4.36
5.27
5
Average Cost of Production
Total C
18
$70
16
$60
14
Production cost
$50
12
Average fixed cost (AFC)
10
Average Variable cost
(AVC)
Average Total Cost (ATC)
Marginal Cost (MC)
Dollar cost
$30
$20
$10
2
0
$40
$0
1 2 3 4 5 6 7 8 9 10
0 1 2 3 4
Output
Profit Maximization
$70
$60
$50
$40
revenue and cost
Mea
$30
$20
1
Total Cost
Total Revenue
(TC)
price and cost per unit
$70
$60
$50
$40
revenue and cost
Total Cost
$30
(TC)
Total Revenue
price and cost per unit
$20
$10
$0
Output
1. Explain in your own words why MC=MR is a profit maximizing production level ?
Because if mc is greater than mr, a firm has spent more capital to get just a little mor
wise to break even.
2. Assume prices dropped to $4.25. What then would be the profit maximizing or loss
of production ?
loss minimizing level of production
3. Should the firm continue to operate at this point?
Yes they need to put more hours of output!
for the Perfect Competitive Market Structure
ollar cost
Market
Price
Perfect
Competit
Total
ion
Revenue
$5
$0
$5
$5
$5
$10
$5
$15
$5
$20
$5
$25
$5
$30
$5
$35
$5
$40
$5
$45
$5
$50
$5
$55
Total
Profit
($10)
($12)
($10)
($7)
($3)
$0
$2
$3
$3
$2
$0
($3)
Marginal
Revenue
(MR)
5
5
5
5
5
5
5
5
5
5
5
5
Maximum Profit at
Profit Maximizing
Output
MC=MR
Total Cost of production
$70
$60
$50
$40
Total fixed Cost (TFC)
Total Variable Cost (TVC)
$30
Total Cost
(TC)
$20
$10
$0
0 1 2 3 4 5 6 7 8 9 10 11
output
Measuring Total profits
rice and cost per unit
18
16
14
12
10
8
6
Average Total Cost (ATC)
Marginal Cost (MC)
Marginal Revenue (MR)
rice and cost per unit
18
16
14
12
Average Total Cost (ATC)
10
Marginal Cost (MC)
Marginal Revenue (MR)
6
4
2
0
Output
ing production level ?
tal to get just a little more revenue. so it is
profit maximizing or loss minimizing level
Monopoly Profit Maximizing Analysis
Price Per
Total
Total
Unit
Revenue
Output (Demand
Units
)
(TR)
0
$8.00
0.00
1
$7.80
7.80
2
$7.60
15.20
3
$7.40
22.20
4
$7.20
28.80
5
$7.00
35.00
6
$6.80
40.80
7
$6.60
46.20
8
$6.40
51.20
9
$6.20
55.80
10
$6.00
60.00
11
$5.80
63.80
12
$5.60
67.20
Total
Costs
(TC)
10.00
14.00
17.50
20.75
23.80
26.70
29.50
32.25
35.10
38.30
42.70
48.70
57.70
Total
Profit
(TP)
-10.00
-6.20
-2.30
1.45
5.00
8.30
11.30
13.95
16.10
17.50
17.30
15.10
9.50
Average
Total
Marginal Marginal
Cost
Cost
Revenue
(ATC)
(MC)
(MR)
0.00
14.00
4.00
7.40
8.75
3.50
7.00
6.92
3.25
6.60
5.95
3.05
6.20
5.34
2.90
5.80
4.92
2.80
5.40
4.61
2.75
5.00
4.39
2.85
4.60
4.26
3.20
4.20
4.27
4.40
3.80
4.43
6.00
3.40
4.81
9.00
Monopoly Profit Determination
$16.00
$14.00
$12.00
Price, Marginal Revenue, & costs
$10.00
Price Per Unit (Demand)
$8.00
Average Total Cost (ATC)
Marginal Cost (MC)
$6.00
Marginal Revenue (MR)
$4.00
$2.00
$0.00
Output
Revenue-Cost Comparison
80.00
70.00
60.00
50.00
Total Costs/Total Revenue
40.00
Total Revenue
30.00
Total Costs (TC)
20.00
10.00
(TR)
80.00
70.00
60.00
50.00
Total Costs/Total Revenue
40.00
Total Revenue
30.00
Total Costs (TC)
20.00
10.00
0.00
Output
(TR)
DEMAND PRICE
Unit (Demand)
otal Cost (ATC)
Cost (MC)
Revenue (MR)
MC=MR
AVERAGE TOTAL
COSTS
