PROFIT MAXIMIZATION AND SUPPLY Let Q(L) = 612 - (L3)/6 with costs = 300 + 100L. Let the price of output be P = $4. a) Complete the table on the next page. You can do this in excel or by hand. b) Graph revenues and costs as a function of Q: Can you explain why is revenue linear in output (a straight line) but costs are not linear. c) Identify the profit maximizing level of L (and hence Q) in your figure. d) Show the break-even level of Labour and Output. That is, what is the minimum level of L and Q that ensure positive profits. Why do we need to raise output high enough to break even? e) Why is it true that, at the optimal output, marginal cost = $4. Give the intuition. f) Suppose P falls to $1.8. Confirm that the firm will choose Q = 0 (eg shut-down). Explain what is happens.