A car manufacturing company operates in a competitive market and aims to maximize profits by optimizing its input use. The firm uses capital (K) and labour (L) as primary inputs in its production process. Initially, the company has a fixed capital of 5 units while labour is variable.

The firm notices that increasing labour initially raises output significantly, but after a point, the additional output from each extra worker starts decreasing due to diminishing marginal returns. To analyze its cost structure, the firm calculates Total Fixed Costs (TFC), Total Variable Costs (TVC), and Total Costs (TC).

At a production level of 4 units of output, the firm's TFC is ?200, TVC is ?300, making the TC ?500. The firm also considers Returns to Scale in the long run, as it plans to expand its factory and increase both labour and capital proportionally.