Introduction to Production Cost

Perfect Competition 

This lesson series introduces the concept of cost – Marginal, Fixed and Variable Costs, discusses Perfect Competition in the Short Run. There is a brief discussion on factors of production but a special module on factors of production will be available under Applied Learning that is an essential reference. The series will share understanding of production function and costs.

This series includes solved examples explaining concepts, graphs and worksheet problems.

• The products have no differentiation and are standardized
• The entry and exit barriers are low
• Firms are price takers; cannot influence price
• Sell at market equilibrium price
• Industry works like a commodity with consumers price sensitive

Perfect Competition Demand Function of a Single Firm 

Firms price takers

Demand curve is perfect price elasticity

Cannot influence market price – too small actor to influence total output

Selling only at equilibrium price

Perfect price elasticity

Video: The middle Road 

The video explains total and marginal revenue looking at the example below.

The relationship between factors of production and the output is called as the Production Function. The next lesson under Microeconomics section will discuss this at length. Refer to the lesson on Factors of Production here.