Costs of production:

1. fixed cost: costs that don’t change with the ampunt produced

2. variable cost: costs that do change with the amount produced

3. total cost: fixed costs + variable costs

4. marginal costs: additional cost of one additional output

5. AVC : Variable cost : Quantity

6. AFC= fixed cost : quantity

7. ATC= total cost : quantity

Profit maximization:

Profit = Total Revenue – Total costs

Profit maximization happen when MR = MC

The Shut down point

The shut down point happen when price is lower than the average variable costs, so the firm just stop
producing. (P < AVC)

Producing at MR = MC