Production and costs

This course is a part of AP®︎ Microeconomics, a 11-course Topic series from Khan Academy.

This unit covers production and cost analysis both in the short run and in the long run. It begins with an introduction of the short-run production function, describing the relationship between the quantity of inputs and the quantity of output. Within the context of the production function, we understand average and marginal products as well as the law of diminishing marginal returns. We learn the link between productivity and costs and examine the relationships among the short-run costs: total, average, and marginal. With an introduction of the concept of cost minimization and productive efficiency, this unit also includes a discussion of long-run costs and an examination of economies and diseconomies of scale, as well as returns to scale.

This course contains 3 segments:

Average costs (ATC, MC) and marginal revenue (MR)

In this tutorial, Sal uses the example of an orange juice business to help us understand the ideas of average total cost (ATC), marginal cost (MC) and marginal revenue (MR). We then use this understanding to answer the age-old question, "how much orange juice should I produce?" Finally, we use these ideas to construct a long-run supply curve. A must watch if you're interested in making juice!

Average fixed, variable and marginal costs

Using a spreadsheet, Sal walks through an example of average costs per line of code as a firm hires more engineers. Really good primer to understand what average fixed costs, average variable costs, average total costs (ATC) and average marginal costs (MC) are (and how they are calculated).

Price discrimination

This short tutorial explores how a wine business can utilize first-degree price discrimination to maximize economic profit (it uses many of the ideas we've explored in the rest of this tutorial).