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ECON101: Principles of Microeconomics

Unit 5: The Producer   In this unit, we will learn about one of the most important economic agents: the producer.  The producer (firm) is responsible for creating the production function (output) and is subject to various cost measures as well as the results of diminishing returns.  We will explore these ideas more fully as we delve into the relationship between quantity of input and quantity of output and discuss how and why a firm’s costs may differ in the short-run versus the long-run.

Unit 5 Time Advisory
This unit should take approximately 8.75 hours to complete.

☐    Introduction: 2.75 hours

☐    Subunit 5.1: 1.5 hours

☐    Subunit 5.2: 1.5 hours

☐    Assessments: 2 hours

☐    Unit Review: 1 hour

Unit5 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Demonstrate an understanding of the behavior of the producer. - Compare the costs of production in the short run to costs of production in the long run. - Identify the production function in the short run as well as the long run. - Compute the relationship between different cost functions.

  • Reading: Principles of Microeconomics: “Chapter 8: Production and Cost” Link: Principles of Microeconomics“Chapter 8: Production and Cost” (PDF)

    Instructions: Read this chapter, including the Introduction. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section.  These should be your goals as you read through the chapter.  This reading covers sections 5.1 and 5.2.

    Reading these sections should take approximately 2 hours.

    Terms of Use: The text was adapted by The Saylor Foundation under a Creative Commons-Attribution-NonCommerical-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensee.

  • Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 7: Production” and “Chapter 8: Costs” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 7: Production” and “Chapter 8: Costs” (PDF)

    Instructions: This reading is optional.  It will provide you with mathematical analysis of the topics below.  When you click the link above, you will be directed to a page from which you can download the entire book as a PDF.  Scroll down to “Chapter 7: Production” on page 51 and then to “Chapter 8: Costs” on page 60.

    Reading this section should take approximately 45 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Assessment: biz/ed’s “Quizzes on Firms” Link: biz/ed’s “Quizzes on Firms” (HTML)

    Instructions: When you have completed the readings for this unit, please take the following quizzes: “Firms: Short Run Costs”“Firms: Production”, and “Firms: Long Run Costs”.

    Completing this assessment should take approximately 2 hours.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

5.1 The Short Run   - Web Media: YouTube: The Saylor Foundation’s “Understanding Normal Profit” Link: YouTube: The Saylor Foundation’s “Understanding Normal Profit” (YouTube)

 Watch this video about how a coffee shop owner decides whether to
keep is shop open or take another job, At the end of the video,
consider the role of opportunity costs and how they affect business
decisions. Think about times you've had to make choices and how
opportunity costs affected those decisions.  

 Watching this video and pausing to take notes should take
approximately 5 minutes.

5.1.1 The Short Run Production Function   5.1.1.1 Total Product   5.1.1.2 Average Product   5.1.1.3 Marginal Product   5.1.1.4 The Law of Diminishing Marginal Returns   - Lecture: Khan Academy’s “A Firm’s Marginal Product Revenue Curve” Link: Khan Academy’s “A Firm’s Marginal Product Revenue Curve” (YouTube)

 Instructions: Please watch the entire lecture, which is about a
firm’s marginal product revenue curve.  

 Watching this lecture should take approximately 15 minutes.  

 Terms of Use: This video is licensed under a [Creative Commons
Attribution-NonCommercial-ShareAlike License 3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/us/deed.en_CA).
 It is attributed to the Khan Academy.

5.1.2 Costs in the Short Run   - Web Media: The Saylor Foundations’s “Understanding the Short-Run Shutdown” Link: The Saylor Foundations’s “Understanding the Short-Run Shutdown” (YouTube)

 Instructions: Watch this video about how a baker decides whether to
keep her bakery open or to close. At the end of the video, consider
the role of costs and how they affect business decisions. Think
about examples of businesses which have chosen to shut down.  

 Watching this video and pausing to take notes should take
approximately 5 minutes.

5.1.2.1 Total Costs   5.1.2.2 Average Costs   5.1.2.3 Marginal Cost   5.1.2.4 Relationship Between Product Curves and Cost Curves   - Lecture: Khan Academy’s “Fixed, Variable, and Marginal Cost” Link: Khan Academy’s “Fixed, Variable, and Marginal Cost” (YouTube)

 Instructions: Please watch the entire lecture, which is about
fixed, variable, and marginal cost.  

 Watching this lecture should take approximately 15 minutes.  

 Terms of Use: This video is licensed under a [Creative Commons
Attribution-NonCommercial-ShareAlike License 3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/us/deed.en_CA).
 It is attributed to the Khan Academy.

5.2 The Long Run   5.2.1 The Firm's Production Decision   5.2.2 Costs in the Long Run   5.2.3 Economies of Scale   - Lecture: Khan Academy’s “Long-Term Supply Curve and Economic Profit” Link: Khan Academy’s “Long-Term Supply Curve and Economic Profit” (YouTube)

 Instructions: Please watch the entire lecture, which is about the
long-term supply curve and economic profit.  

 Watching this lecture should take approximately 10 minutes.  

 Terms of Use: This video is licensed under a [Creative Commons
Attribution-NonCommercial-ShareAlike License 3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/us/deed.en_CA).
 It is attributed to the Khan Academy.

End of Unit 5 Review   - Reading: MIT OpenCourseWare: “Principles of Economics Lecture Notes D10-D14” Link: MIT OpenCourseWare: “Principles of Economics Lecture Notes D10”“Principles of Economics Lecture Notes D11”, “Principles of Economics Lecture Notes D12”“Principles of Economics Lecture Notes D13”, and “Principles of Economics Lecture Notes D14” (PDF)

 Instructions: These are optional readings.  Please click on the
links above to review producer theory and to take a look at how
production functions and cost functions can be derived
mathematically.  

 Reading these sections should take approximately 1 hour and 15
minutes.  

 Terms of Use: The article above is released under a [Creative
Commons Attribution-NonCommercial-Share-Alike License
3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/).  You can
find the original MIT version of this article
[here](http://ocw.mit.edu/courses/economics/14-01-principles-of-microeconomics-fall-2007/lecture-notes/).