Production Function & Costs
Cost Curves & Profit Maximization
📈 Market Price
Price (P) $12.00
P = MR = AR (price taker)
Cost Structure
Fixed Cost (FC) $50
Wage (w) $10
TC = FC + VC
VC = w · L
Production Technology
Productivity (A) 4.0
Q = A · L0.5
(diminishing returns)
Optimal Decision
Optimal Q* 10.0
Labor (L*) 6.25
Total Revenue $120
Total Cost $112.50
ATC at Q* $11.25
AVC at Q* $6.25
Economic Profit
$7.50
Decision: PRODUCE — Price exceeds AVC, firm covers variable costs and some fixed costs.
Legend
Price / MR
MC (Marginal Cost)
ATC (Avg Total Cost)
AVC (Avg Variable Cost)
Profit Max Point (MR=MC)