Producer Theory

… a core concept in Economic Analysis and Atlas102

Click for MIT OCW course

Click for MIT OCW course

Concept description

Producer theory analyzes the behaviour of producers, including firms.

As noted by Jonathan Gruber in MIT OpenCourseWare (link on right):

“The goods purchased by consumers are produced by firms, another key set of economic players. This unit introduces you to the study of firm, or producer, behavior. You will learn how to analyze firms’ decisions mathematically using a production function and calculate their optimal level of production, costs, and profits. In addition, you will begin to learn how firms interact in a competitive market in the short-run and the long-run.”

Producer theory and calculus

It is possible to develop a good intuitive understanding of the underlying concepts without a knowledge of calculus, as illustrated by the treatment of producer theory in the Cowen and Tabarrok online course, Principles of Economics – Microeconomics (see, producer behaviour is treated under Chapter 9, Costs and Profit Maximization Under Competition, and Chapter 10, Competition and the Invisible Hand.

However, in order to develop what the Atlas Examination Standards refer to as an A level comprehension of producer theory, it is necessary to utilize a minimal degree of calculus. This minimal level is used in the Jonathan Gruber Principles of Microeconomics course in MIT OpenCourseWare referenced above. Gruber deals with producer theory in four one-hour video lectures.

These four hours of lectures and the accompanying problem sets can help students master Producer Theory Calculus.

Most of the concepts used the treatment of producer theory provide by MIT OpenCourseWare and other MPP/MPA courses are also used by Cowen and Tabarrok, with the exception of the following, where other sources are used to develop the Atlas entry:

Production Possibility Frontier

Factors of Production

Production Function

Variable Input

Fixed Input

Short Run

Long Run

Economies of Scale

Returns to Scale

Isoquant Curve

Marginal Rate of Transformation

Monotonic Transformation

Reservation Price

Technical Rate of Substitution

Technological Change

Technological Constraints


MIT OpenCourseWare, Producer Theory, at, accessed 19 May 2016.

Atlas topic and subject

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

Page created by: Ian Clark, last modified on 27 May 2016.

Image: MIT OpenCourseWare, Producer Theory, at, accessed 19 May 2016.