Production Costs and the Law of Supply

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This topic takes us from the theory of consumer behaviour to the first part of our study of producer behaviour, that is, how typical firms determine their output and, ultimately, the supply of a product entering the market.


    • To introduce the different types of business enterprise ("firms"), with particular attention to the modern corporation
    • To explain why the term "cost" as used in economic theory is more broadly conceived than might be expected from our everyday use of the term
    • To develop the principle of diminishing returns and relate it to historical expectations of human "progress"
    • To show how the physical principle of diminishing returns translates into a theory of how a firm's costs change as output is increased
    • To explore the implications of the behaviour of long-run costs of the firm for maintenance of competition in markets.

Copyright 1999 K.J. Rea