Production, cost, and the perfect competition model

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

This unit covers production and cost analysis and the behavior of firms in perfect competition. Topics include an introdduction to the short-run production function, diminishing marginal returns, the link between productivity and costs, the relationships that exist among cost curves, long-run costs, economies and diseconomies of scale, profit maximization, and the behavior of firms in perfectly competitive markets in the short run and the long run.

This course contains 7 segments:

The production function

In this lesson, learn key terms and concepts relating to production and cost, how production and cost are related in the short run and the long run, and how to calculate various measures of productivity and short-run and long-run costs.

Short-run production costs

In this lesson we start to explore the link between productivity and costs. We explore marginal cost, average fixed cost, average variable cost, average total cost, total cost, and total variable cost and how these change as total output changes.

Long-run production costs

In this lesson, learn about the production costs in the long run. Topics include the long-run average total cost curve, economies of scale, minimum efficient scale, and the relationship between minimum efficient scale and competition

Types of profit

In this lesson, we explore the different types of profit, how firms respond to incentives, and how to calculate profit.

Profit maximization

The profit-maximizing rule says that profit is maximized when MR=MC. Learn about the profit-maximizing rule in this lesson.

Firms’ Short-run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market

Firms' decisions to enter or exit a market depends on whether or not a firm can make a profit. Learn about the conditions under which firms enter and exit markets, and when to shut down, in this lesson

Perfect competition

This tutorial looks at markets that are deemed to have "perfect competition." This means that there are many players with identical products, no barriers to entry, no advantage for existing players and good pricing information. Few to no real market completely matches this theoretical ideal, but many are close. Even the example we use in this tutorial (the airline industry) isn't quite perfect (you should think about why).