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