A 6-step visual walkthrough of Production, Cost, and the Perfect Competition Model — cost curves, profit maximization, and the shutdown decision, built right into the page.
Marginal cost first falls (increasing marginal returns) then rises (diminishing marginal returns) — giving MC its characteristic checkmark shape.
Step 2 of 6
MC, ATC & AVC Together
MC crosses both ATC and AVC at their minimum points. When MC is below an average, that average is falling; when MC is above, the average is rising.
Step 3 of 6
Profit Maximization: MR = MC
The profit-maximizing quantity (Q*) is where the MC curve crosses the marginal revenue line. For a perfectly competitive firm, MR is a horizontal line at the market price.
Step 4 of 6
Short-Run Profit
When price exceeds ATC at the profit-maximizing quantity, the firm earns positive economic profit — the shaded rectangle between price and ATC.
Step 5 of 6
The Shutdown Decision
If price falls below the minimum of AVC, the firm should shut down immediately — it can't even cover its variable costs, so operating loses more than closing.
Step 6 of 6
Long-Run Equilibrium
In long-run equilibrium, entry and exit have driven price to equal both marginal cost and minimum ATC — zero economic profit, allocative efficiency, and productive efficiency all at once.
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How to use the visual review
Spend 30 seconds per step before clicking next. Look at the diagram, then ask yourself: "Could I sketch this from memory and label every part?"
Use the dots below the diagram to jump straight to any step, or the arrow keys to move forward and back.
This is great for review the night before the exam — fast, visual, and covers every core diagram you need to remember from Unit 3.