How to identified my profits is greater than 0 or not?

π (Profit) = TR - TC
AC = TC/Q
= P*Q - TC
all divided by Q “A” means Average.
then π = P - AC

(1) π > 0 means P > AC

(2) π = 0 means P = AC
(3) π < 0 means P < AC

How to maximize my profits?

-> use first order condition (F.O.C) I told you before. ***In the Perfectly
Competitive Market, Q is not
the variable or reason that
dπ / dQ = dTR/dQ - dTC/dQ = 0 will affect P.
= P - MC = 0

∴ When P = MC, you can maximize your profits.

( only for perfectly competitive market)

If I am a shopkeeper, what decision should I make?

( Look at the picture above)
 If I am a shopkeeper, what decision should I make?
( Look at the picture above)

Case I : When the price is P1, great, keep going, your π > 0,in this
case, you can maximized your profits, when you produce Q4 quantity.

Case II : When the price is P3, your π = 0, in this case, you can
maximized your profits, when you produce Q3 quantity.

Case III : When the price is P2, We call it “Shut-down point”, P = AVC,
you can make your choice whether if you wants to keep producing or
not.
(1) P > AVC keep producing.
(2) P = AVC Shut-down point.
(3) AVC < P < AC, you have some losses, but you should still keep
producing, or you’ll loose more than stop producing.
(4) P < AVC you should stop producing.

Case IV : When the price is P1, P < AVC, you should stop producing.

Little Skill for you

π -> profit
TR -> Total Revenue
TC -> Total Cost
TVC -> Total Variable Cost
TFC -> Total Fixed Cost
AVC -> Average Variable Cost
AFC -> Average Fixed Cost
TC = TVC + TFC
AC = TC/Q
AVC = TVC/Q
AFC = TFC/Q

Summary:

(1) P > AC, profits great than 0

(2) P = AC, profits equal to 0
(3) P < AC, profits smaller than 0
(4) P > AVC, the short-term condition to keep producing
(5) P = AVC, shut-down point
(6) AVC < P < AC, lose but should keep producing
(7) P < AVC, stop producing
(8) P > MC, Generating deadweight loss.
(9) P =MC, maximize your profits.
(10) P > MC, Generating deadweight loss.

Solving Steps
(1) Watch the relationship between “Price” and “AVC”, if P<AVC, shut-
down and stop producing. If P < AVC, keep working, and use
F.O.C to get the quantity you should produce.
(2) Watch the relationship between “Price” and “AC” to make sure
your profits is greater than 0 or not.
(3) Use the formula π = TR - TC

= P*Q - TVC - TFC

Where can I find the TFC?


because the TFC is a constant, wherever you could found, it would
be the same, the TFC with quantity = 3000, or the TFC with quantity
= 2000, they are all the same.

because TFC WON’T CHANGE!