Total

Fixed
Total
Costs
Output/hr
(TFC)
0
$10
1
$10
2
$10
3
$10
4
$10
5
$10
6
$10
7
$ 10.00
8
$10
9
$10
10
$10
11
$10

Total
Average
Variable
Fixed
Costs
Total
Costs
(TVC)
Costs (TC)
(AFC)
$0
10
10
7
17
10
10
20
5
12
22
3
13
23
3
15
25
2
18
28
2
22
32
1
27
37
1
33
43
1
40
50
1
48
58
1

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

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

Marginal Market Price

Costs
Perfect
Total
(MC)
Competition Revenue
5.00 $
$ 10.00 $
5.00 $ 5.00
$ 7.00 $
5.00 $ 10.00
$ 3.00 $
5.00 $ 15.00
$ 2.00 $
5.00 $ 20.00
$ 1.00 $
5.00 $ 25.00
$ 2.00 $
5.00 $ 30.00
$ 3.00 $
5.00 $ 35.00
$ 4.00 $
5.00 $ 40.00
$ 5.00 $
5.00 $ 45.00
$ 6.00 $
5.00 $ 50.00
$ 7.00 $
$ 8.00 $
5.00 $ 55.00

Marginal
Total
Revenue
Profit
(MR)
$ (10.00)
5
$ (12.00)
5
$ (10.00)
5
$ (7.00)
5
$ (3.00)
5
$
5
$ 2.00
5
$ 3.00
5
$ 3.00
5
$ 2.00
5
$
5
$ (3.00)
5

$60
$40

Production Costs

Dollar Costs

$80

$20
$0
1

10

11

Total Output/hr
Total Fixed Costs (TFC)
Total Variable Costs (TVC)
Total Costs (TC)

18
16
14
12
10
8
6
4
2
0

70
60
50
40
30
20
10
0

10

11

Average Fixed Costs (AFC)

Average Variable Costs (AVC)

Average Total Costs (ATC)

Marginal Costs (MC)

Measuring Total Profits

Average Total Costs (ATC)

10

11

Total Output/hr
Total Costs (TC)

Total Revenue

Profitability Analysis
1) MC=MR is where the profit maximizing point is reached.
This can be explained becasue Marginal Costs are the
additional costs associated with each new unit produced.
Each unit produced incurrs its own costs. Once this level
reaches our marginal revenue we should stop produceing
because if we prduced past the point where MC=MR we are
actually losing potential profits beacsue our marginal costs
per unit will be greater than the marginal revenue we make
on that particular unit.
2) If we were forced to drop our price to $4.25 due to shifts
in the market our new profit maximizing/ loss minimizing
point would be 7 units/ hour. We'd be losing money but this
would be the point we'd lose the least amount of money.
3) At this price we could shut down or stay in business. It
would depend on if our losses exceeded our total fixed costs.
In this case since we're losing about two dollars an hour,
shutting down would make sense. If we shut down we only
lose $10 a monthbecasue of our fixed costs, but if we stay in
operation we'd have to lost $2 every hour we are operating
and produceing widgets.

Marginal Costs (MC)

Marginal Revenue (MR)

18.00

16.00

Price and Cost perUnit

Revenue and Costs

Total Output/hr

Profit Maximization

14.00
12.00
10.00
8.00

6.00
4.00
2.00
0.00
1

Total Output/hr

10

11