1. PRODUCTION COSTS PROFIT FUNCTION COST FUNCTION P = TR – TC P = PROFITS
TR = TOTAL REVENUE
TC = TOTAL COST
TR = PRICE X QUANTITY
COST FUNCTION
TC = FIXED COST + VARIABLE COST

2. DEMAND SCHEDULE

3. DEMAND

4. MATRIX COSTS

5. COST & REVENUE FUNCTION

6. MARGINAL ANALYSIS

7. How much to produce?
Marginal cost
Marginal Revenue
MR=MC
Average cost

8. To close or not to close? RULE OF THUMB
A firm must close or should stop offering the service if at every level of production average revenue (AR) is less than the average cost (AC). Why?

9. Why close? AR < AC IT = P X Q AR = IT / Q = P AR = P = D AC = TC/Q
PROFIT = TR – TC
AVERAGE P = A R – A C
IF A P < 0 THEN
A C > A R
AC > P