|Lecture handout: Cost curves*
Textbook Reading: Chapter 2 (Intro, Section 2.1 and 2.2, pp. 39-54)
Here is a good video on the law of diminishing marginal returns:
A wonderful extension of the mechanistic principles that drive returns to scale and economies of scale can be found in Scale, by Geoffrey West (see here for a review).
My favourite example of the importance of having an intuitive understanding of the shape of average costs curves is this one:
- Mr Morita, October 2010
Here’s my video on the difference between short run and long run decision making:
And here’s a good tweet that captures the basic point:
Most people are either good at thinking with a 10 year time horizon or operating with the urgency of a 10 day time horizon.
Extremely powerful if you can do both!
— Sam Altman (@sama) May 7, 2021
Here’s a video with a more traditional, textbook treatment of supply curves:
Interactive practice: Change in supply vs. change in quantity supplied
Finally, in this video on the UK probation service I look at different ways of measuring cost:
|Learning Objectives: Sunk cost fallacy, short term shut down condition, profit maximisation, deriving a supply curve.
Cutting edge theory: La Marmotte was published in 2019!