Book contents
- Frontmatter
- Contents
- Preface
- How to use this book
- List of online perspectives
- List of further readings online
- List of online video modules
- Book I The market economy, overview and application
- Book II Demand and production theory
- 6 Consumer choice and demand in traditional and network markets
- 7 Production costs and the theory of the firm
- 8 Production costs in the short run and long run
- Book III Competitive and monopoly market structures
- References
- Index
8 - Production costs in the short run and long run
from Book II - Demand and production theory
- Frontmatter
- Contents
- Preface
- How to use this book
- List of online perspectives
- List of further readings online
- List of online video modules
- Book I The market economy, overview and application
- Book II Demand and production theory
- 6 Consumer choice and demand in traditional and network markets
- 7 Production costs and the theory of the firm
- 8 Production costs in the short run and long run
- Book III Competitive and monopoly market structures
- References
- Index
Summary
In economics, the cost of an event is the highest-valued opportunity necessarily forsaken. The usefulness of the concept of cost is a logical implication of choice among available options. Only if no alternatives were possible or if amounts of all resources were available beyond everyone's desires, so that all goods were free, would the concepts of cost and of choice be irrelevant.
Armen AlchianThe individual firm plays a critical role both in theory and in the real world. It straddles two basic economic institutions: the markets for resources (labor, capital, and land) and the markets for goods and services (everything from trucks to truffles). The firm must be able to identify what people want to buy, at what price, and to organize the great variety of available resources into an efficient production process. It must sell its product at a price that covers the cost of its resources, yet allows it to compete with other firms. Moreover, it must accomplish those objectives while competing firms are seeking to meet the same goals.
How does the firm do all this? Clearly, firms do not all operate in exactly the same way. They differ in organizational structure and in management style, in the resources they use and in the products they sell. This chapter cannot possibly cover the great diversity of business management techniques. Rather, our purpose is to develop the broad principles that guide most firms' production decisions.
- Type
- Chapter
- Information
- Microeconomics for MBAsThe Economic Way of Thinking for Managers, pp. 287 - 326Publisher: Cambridge University PressPrint publication year: 2010