Costs

of Production and Profit Maximization Analysis for the Perfect

Competitive Market Structure

Total
Output/hr

Total
Fixed
Costs
(TFC)

Total
Variable
Costs
(TVC)

Total
Costs
(TC)

0
1
2
3
4
5
6
7
8
9
10
11

$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10

$0
7
10
12
13
15
18
22
27
33
40
48

$10
$17
$20
$22
$23
$25
$28
$32
$37
$43
$50
$58

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

0
7
5
4
3
3
3
3
3
4
4
4

Average
Total
Costs
(ATC)

Market
Marginal
Price
Costs
Perfect
Total
(MC)
Competition Revenue

Total
Profit

Marginal
Revenue
(MR)

$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5

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

$5
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5

0
17.00
10.00
7.33
5.75
5.00
4.67
4.57
4.63
4.78
5.00
5.27

7
3
2
1
2
3
4
5
6
7
8

$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$55

Profit Maximization

Analysis
1. MC = MR becuase if the company sold any more or
any less they would not be maximizing their profit
gained per unit sold.
2. If the price were to drop to $4.24 then would lose $5
per unit sold, but they would minimize the loss by
ajusting their output to 7 units per hour.
3. At that rate mentioned in 2, they would eventually go
out of business and should not operate at such.

18
16

$60

14

$50
$40
$30

Total Costs (TC)

$20

Total Revenue

Production Costs

Revenue and Costs

Maximum Profit at Profit Maximizing Output.

Average Cost of Production

$70

Average Fixed Costs (AFC)

12
10
8

Average Variable Costs

(AVC)

Average Total Costs (ATC)

$10

$0
1

10

11

Marginal Costs (MC)

12

Output

10

12

Output

Measuring Total Profits

To tal Co s ts o f Pro d u ctio n

70

18.00

14.00
12.00
10.00

Average Total Costs

(ATC)

60

Marginal Costs (MC)

50

Marginal Revenue
(MR)

8.00
6.00

DOLLAR COSTS

16.00
Price and Cost per unit

Marginal Costs = Marginal Revenue.

40

Total Fixed Costs (TFC)

30

Total Variable Costs (TVC)

20

4.00
2.00

Total Costs (TC)

10

0.00
1

6
Output

10

11

0
0

10
OUTPUT

15