Profitability Analysis

Costs of Production and Profit Maximization Analysis

Perfect Competition

Total
Fixed
Costs
(TFC)
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10

Total
Output/hr
0
1
2
3
4
5
6
7
8
9
10
11

Total
Variable
Costs
(TVC)
$0
7
10
12
13
15
18
22
27
33
40
48

Average
Fixed
Costs
(AFC)
0
10
5
3
3
2
2
1
1
1
1
1

Total
Costs
(TC)
$10
$17
$20
$22
$23
$25
$28
$32
$37
$43
$50
$58

Average
Variable
Costs
(AVC)
0
7
5
4
3
3
3
3
3
4
4
4

Average
Total
Costs
(ATC)
0.00
17.00
10.00
7.33
5.75
5.00
4.67
4.57
4.63
4.78
5.00
5.27

Marginal
Costs (MC)
-7
3
2
1
2
3
4
5
6
7
8

Market
Price
Perfect
Competiti Total
on
Revenue
$4
$0
$5
$5
$5
$10
$5
$15
$5
$20
$5
$25
$5
$30
$35
$5
$40
$5
$5
$45
$5
$50
$5
$55

1.) The point when Marginal Cost=Marginal Revenue and is profit is at maximum because the cost of
producing one more unit doesn't increase Marginal Cost but will still increase Marginal Revenue.
2.) If the prices drops to $4.25 the loss minimizing level of production will be 7 units an hour. You
would still have a loss of $2.

Marginal
Revenue
(MR)
-5
5
5
5
5
5
5
5
5
5
5

Total
Profit
($10)
($12)
($10)
($7)
($3)
$0
$2
$3
$3
$2
$0
($3)

3.) The firm could still operate amd should look towards selling and cutting costs.

$140

18
16

$120

Average Fixed Costs (AFC) 0

14
Average Variable Costs
(AVC) 0

10
8

Average Total Costs (ATC)

0.00

Dollar Costs

Production Costs

$100
12

$80

Total Costs (TC)

Total Variable Costs (TVC)

$60

Total Fixed Costs (TFC)

$40

Marginal Costs (MC) --

$20

$0

0
1

6
7
Output

10

11

10

11

12

18.00

$60

16.00

$50
$40
$30
$20
$10
$0
1

6
7
Output

10

11

12

PRICE AND COST PER UNIT

Revenue and Costs

Measuring Total Profits

$70

14.00
12.00
Average Total Costs (ATC) 0.00

10.00
8.00

Marginal Costs (MC) --

6.00

Marginal Revenue (MR) --

4.00
2.00
0.00

Total Costs (TC)

Total Revenue

10

11