Minimization of Total Industry Costs of Production

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video

Concept description

Alex Tabarrok (reference below, video on right) connects several ideas covered in previous videos about the price system and profit maximization.

Tabarrok says:

“In this video, we begin to understand two basic functions of the Invisible Hand. In competitive markets, the market price (with the help of the Invisible Hand) balances production across firms so that total industry costs are minimized. Competitive markets also connect different industries. By balancing production, the Invisible Hand of the market ensures that the total value of production is maximized across different industries. We’ll use the example of minimizing total costs of corn production, and demonstrate our findings through several charts.”

InvisibleHandPropertiesTabarrok demonstrates that:

IH1

Practice questions

From http://www.mruniversity.com/node/264309, accessed 7 May 2016.

  1. Entrepreneurs shift capital and labor across industries in pursuit of profit. Let’s look at this a little more closely. Suppose there are two industries: a high-profit industry, Industry H, and a low-profit industry, Industry L. Answer the questions below about these two industries. If the two industries have similar costs, then what must be true about prices in the two industries?

Atlas topic, subject, and course

Producer Theory and Competition (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, Minimization of Total Industry Costs of Production (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/minimizing-industry-costs-production-invisible-hand, accessed 7 May 2016.

Page created by: Ian Clark, last modified 7 May 2016.

Image: Alex Tabarrok, minute 0.14 of Minimization of Total Industry Costs of Production (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/minimizing-industry-costs-production-invisible-hand, accessed 7 May 2016.