Producer Theory and Competition

… a core topic in Economic Analysis and Atlas102

VideoForFirmTopic description

This topic deals with costs and profit maximization under competition.

The treatment of this topic on the Atlas follows almost precisely that in Chapter 9, Costs and Profit Maximization Under Competition, and Chapter 10, Competition and the Invisible Hand, of the open access Principles of Microeconomics course offered by Tyler Cowen and Alex Tabarrok at the Marginal Revolution University online education platform (http://www.mruniversity.com/courses/principles-economics-microeconomics, accessed 7 May 2016).

Topic learning outcome

Appropriately utilize and interpret results of applying the principles of producer theory and competition, including the identified core concepts, to the analysis of public policy and management problems.

Core concepts associated with this topic
Maximizing Profit under Competition

Entry, Exit, and Sunk Costs

Increasing Cost Industries

Constant Cost Industries

Industry Clusters and Decreasing Cost Industries

Minimization of Total Industry Costs of Production

Balance of Industries and Creative Destruction

Producer Theory

Average Cost

Marginal Cost

Total Cost

Fixed Costs

Variable Costs

Total Revenue

Profit

Sunk Costs

Break-even Price

Normal Profit

Above-normal Profit

Perfect Competition

Production Possibility Frontier

Isoquant Curve

Marginal Revenue

Creative Destruction

Readings

We believe that this topic and its core concepts can be mastered to the MPP/MPA level by watching and re-watching the 72 minutes of MRU course videos listed below and doing the 43 sample questions associated with these video segments and reproduced at the bottom of this page and repeated on the appropriate concept pages.

Atlas pages: Competition and Theory of the Firm and associated Concepts.

Alex Tabarrok, Introduction to the Competitive Firm (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/deeper-look-tradeable-allowances, accessed 6 May 2016.

Alex Tabarrok, Maximizing Profit under Competition (13-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/deeper-look-tradeable-allowances, accessed 6 May 2016.

Alex Tabarrok, Maximizing Profit and the Average Cost Curve (12-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/profit-maximization-average-cost, accessed 6 May 2016.

Alex Tabarrok, Entry, Exit, and Supply Curves: Increasing Costs (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/profit-maximization-average-cost, accessed 7 May 2016.

Alex Tabarrok, Entry, Exit, and Supply Curves: Constant Costs (10-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-constant-cost-industry, accessed 7 May 2016.

Alex Tabarrok, Entry, Exit, and Supply Curves: Decreasing Costs (6-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-decreasing-cost-industry, accessed 7 May 2016.

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.

Alex Tabarrok, The Balance of Industries and Creative Destruction (8-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/creative-destruction-definition-elimination-principle, accessed 7 May 2016.

Textbook readings in MPP and MPA courses 

University of Toronto PPG1002

  • Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 19

Carleton University PADM5111

  • Frank, Robert, Ian Parker, and Igela Alger. Microeconomics and Behaviour, 5th Canadian Edition. New York: McGraw-Hill, 2013. Chapters 9 and 10

Harvard Kennedy School API101

  • Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapters 6 and 7 (pp. 229-258)

NYU Wagner GP1018

  • Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapters 9 (up to pg. 258), 11 (up to pg. 333), and 12

Ford School of Public Policy: Public Policy 555

  • Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapter 6

George Washington: PPPA-6003

  • Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011.  Chapters 13 and 14
  • Wheelan, Charles. Naked Economics: Undressing the Dismal Science. New York: W. W. Norton & Company, 2010. Chapter 2

American PAUD630

  • Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapter 9 and 11

UCLA Luskin PLC201

  • Goolsbee, Austan, Steven Levitt, and Chad Syverson. Microeconomics. New York:  Worth Publishers, 2013. Chapter 6

Rutgers Economics in Public Policy

  • Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition.  Upper Saddle River: Patience-Hall, 2007. Chapters 7 and 8

Assessment questions (from MRU Practice Questions for Chapter 4)

From http://www.mruniversity.com/node/230468, http://www.mruniversity.com/node/230512http://www.mruniversity.com/node/264181, http://www.mruniversity.com/node/264285, http://www.mruniversity.com/node/264309, http://www.mruniversity.com/node/267267, accessed 3 May 2016.

AQ102.08.01. A competitive firm maximizes profit by choosing

B

AQ102.08.08. The economic definition of profit differs from the accounting definition of profit in that the economic definition includes

AQ102.08.19. For a competitive firm supplying wheat, if the world price (P) equals the firm’s min average cost (min AC), then profits will be

AQ102.08.21. What is the least common cost structure for an industry?

AQ102.08.23.2 In the long run, constant supply curves are:

AQ102.08.26. As Ngoy started hiring more Cambodian refugees to work in his donut shop, this made it more likely that

AQ102.08.27. At this point in the story, what sort of cost industry (constant, increasing, or decreasing) would you consider doughnut shops owned by Cambodians to be?

AQ102.08.30. 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?

AQ102.08.40. Let’s review the basic mechanism of the elimination principle with the following questions. When demand rises in Industry X, what happens to profits? Do they rise, fall, or remain unchanged?

Page created by: Ian Clark, last modified on 16 May 2016.

Image: Minute 11:39 of MRU Video, at http://www.mruniversity.com/courses/principles-economics-microeconomics/profit-maximization-marginal-cost-marginal-revenue, accessed 3 May 2016.