Cost and revenue tables and profitmax decisions
Example.
Flintstone Gadgets.
The price is $38.
P
Q
TR
TC
MC
Profit
Relevant formulas
38
4
152
110
25
42
TR = P x Q
38
5
190
140
30
50
TC (n) = TC (n1) + MC (n)
38
6
228
175
35
53
MC (n) = TC (n)

TC (n1)
38
7
266
215
40
51
Profit = TR

TC
(Profit Max)
38
8
304
260
45
44
A second method of determining a firm’s profitmax level of output is to find the highest level of output at which MC ≤ P. We know
from 7b this is the profitmax level of output.
Problem.
Use marginal cost method to determine the profitmax output level for Flintstone Gadgets. Then use profit formula for
determining what the highest level of profits is.
Solution.
The price is $38
. The highest level of output at which MC ≤ P ($38
) is6
.
Hence the profitmax level of output is $35
. (#6)
Profits at output of 6
= TR (
6
)

TC (
6
) = 228

175
= 53
.
8e. change in profit when one more unit is produced = P

MC.
Hence change in profit = P

MC (8) = $38

$45
= $7
(LOSING $7)
ATC=TC/Q
// Firms earns profit if ATC is < than profits. Firm loses if ATC is > than price.
Breakeven point P=ATC.
Breakeven point diagram for PC firm
P
ATC
loss
loss
Output of 16 results in profit (P > ATC)
50
•
A
•
B
D
Output of 20 is breakeven point
(P = ATC)
(neither profit nor loss)
profit
Output of 24 results in loss (P < ATC)
8
16
20
24
Q
9e. Breakeven point diagram problem..
Draw diagram showing that with price at $350, the breakeven points for a firm occur at
output levels of 20 and 40. After you draw the diagram, use it to determine whether firm would be operating at profit or loss at outputs
of 15, 35 and 55.
P
Output of 15 results in ____________
(profit or loss)
Out put of 35 results in ___________
(profit or loss)
Output of 45 results in ____________
(profit or loss)
Q
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10a. Cost, revenue and profit problem.
A firm
produced 10 units at a total cost of $170 and sold
them all $20 each. Use relevant formulas to
calculate the firm’s total revenue, total profit, and
profit per unit. (Hint: use formulas 123)
Total revenue = price x quantity
TR
= P x Q
= ($20)(10)=
$200
Total profit = total revenue

total cost
TP = TR – TC
= $200  $170 =
$30
Profit per unit = total profit/quantity
PPU
=
TP/Q
= $30/$10 =
$3
10b. Cost, revenue and profit problem.
A firm
produced 20 units at a total cost of $520 and sold
them for $30 each. Use relevant formulas to
calculate the firm’s average total cost, profit per
unit, and total profit. (Hint: use formulas 456)
Average total cost = total cost/quantity
ATC
=
TC/Q
= $520/20 =
26
Profit per unit = price

average total cost
PPU
= P  ATC
= $30  $26 =
$4
Total profit = quantity x profit per unit
TP
=
Q x PPU
= (20)($4) =
$80
11. Profit box diagrams for pure competition.
P
MC = S
ATC
Market price = $22
MC for firm reaches $22 at Q = 90
22
•
E
D
At Q = 90, ATC = $19
Profit box
19
Hence profit max Q = 90
Profit per unit = $22  $19 = $3
Total profit = 90 x $3 = $270
90
Q
Area = Total Profit (TP)
Height = Profit per unit (PPU)
1. has 3 curves: MC, ATC and horizontal demand curve at market determined price
2. firm will maximize profits by producing at point E (where MC intersects demand curve)
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 Fall '08
 MCLEOD,MARKPEHLIVAN,AYSEOZG
 Economics, Monopoly, Perfect Competition, total profit

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