Cost curves

aje on January 12, 2020

Case:

  • La Marmotte, January 2012
    Instructions: Complete Exhibit A and provide suggestions for the two key decisions

  • Spreadsheet.xlsx
  • Note: parts of this case rely on finding derivatives. Here is a background note:

La Marmotte was published by Sage in 2019. La Marmotte is a fictitious restaurant but based on a real business in Montalbert. You can see whether the skiing is good right now with this webcam.

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:

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:

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!