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Part 1 Perfect Competition Analysis
Total Output/hr
Total Fixed Costs (TFC)
Total Variable Costs (TVC)
Total Costs (TC)
Average Fixed Costs (AFC)
Average Variable Costs (AVC)
Average Total Costs
(ATC)
Marginal Costs (MC)
Market Price Perfect
Competition (MPPC)
Total Revenue (TR)
Total Profit (TP)
Marginal Revenue (MR)
0 $10 $0 $10 #DIV/0! #DIV/0! #DIV/0! #DIV/0! $5 $0 ($10) $51 $10 $7 $17 $10 $7.00 $17 $7 $5 $5 ($12) $52 $10 $10 $20 $5 $5.00 $10 $3 $5 $10 ($10) $53 $10 $12 $22 $3 $4.00 $7 $2 $5 $15 ($7) $54 $10 $13 $23 $3 $3.25 $6 $1 $5 $20 ($3) $55 $10 $15 $25 $2 $3.00 $5 $2 $5 $25 $0 $56 $10 $18 $28 $2 $3.00 $5 $3 $5 $30 $2 $57 $10 $22 $32 $1 $3.14 $5 $4 $5 $35 $3 $58 $10 $27 $37 $1 $3.38 $5 $5 $5 $40 $3 $59 $10 $33 $43 $1 $3.67 $5 $6 $5 $45 $2 $510 $10 $40 $50 $1 $4.00 $5 $7 $5 $50 $0 $511 $10 $48 $58 $1 $4.36 $5 $8 $5 $55 ($3) $5
Maximum Profit at Maximizing Output
Marginal Cost (MC) = Marginal Revenue (MR)
Costs of Production and Profit Maximization Analysis Perfect Competitive Market Structure
$0 $2 $4 $6 $8 $10 $12 $14 $16 $18
1 2 3 4 5 6 7 8 9 10 11
Prod
ucGo
n Co
sts
Output
Average Costs of ProducGon
Marginal Costs (MC)
Average Total Costs (ATC)
Average Variable Costs (AVC)
Average Fixed Costs (AFC)
$0
$10
$20
$30
$40
$50
$60
$70
1 2 3 4 5 6 7 8 9 10 11 12
Dollar C
osts
Output
Total Costs of ProducGon
Total Fixed Costs (TFC)
Total Variable Costs (TVC)
Total Costs (TC)
$0
$10
$20
$30
$40
$50
$60
$70
1 2 3 4 5 6 7 8 9 10 11
Revenu
e an
d Co
sts
Output
Profit MaximaizaGon
Total Revenue (TR)
Total Costs (TC)
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00
1 2 3 4 5 6 7 8 9 10 11
Price an
d Co
st per Unit
Output
Measuring Total Profits
Average Total Costs (ATC)
Marginal Costs (MC)
Marginal Revenue (MR)
QuesGons: Q1. Explain in your own words why MC=MR is a profit maximizing producGon level?
A1-‐ Marginal Cost (MC) is the difference in the amount a company sepends to produce one-‐ unit different (+/-‐) of the product. Marginal Revenue is the diffence in the amount of money they make from this one-‐unit difference (+/-‐). If the company spends more to make the product than they earn by selling the product they will lose money. When the company spends less money they make less product and therefore they sell less and make less money.
Q2. Assume prices dropped to $4.25. What then would be the profit maximizing or loss minimizing level of producGon?
A2-‐ 7 units Q3. Should the firm conGnue to operate at this point?
A3-‐ Yes
