CHAPTER 5

Production, Costs, and Revenue

Chapter Preview: This chapter moves from the decisions of utility-maximizing households to examine the behavior of profit-maximizing producers. In Chapter 4 of Volume I, while examining price elasticity of supply, we discovered that the ability of producers to respond to changes in prices is affected by the passage of time. We defined two conceptual time periods—the short run and the long run—that will be important for us in this volume. In this chapter, we focus on production matters in the short-run time period. This chapter introduces many key economic topics—including productivity, costs, and economic profits—that will be reused in subsequent chapters.

By the end of this chapter, you will be able ...

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