Student Guide

ECO/561 Version 9

Week Two Student Guide

This weeks topics cover cost concepts including production levels, fixed and variable costs, and
the application of cost concepts in making business decisions. The chief concerns of many
businesses are revenues and profits, which are often translated into cutting costs. The concept of
efficiently utilizing available resources is explored as the readings review demand for resources,
fixed and variable costs, and labor productivity and wages. The choice of production level or
quantity is affected by the market structure in which a firm is operating. Therefore, the market
structure of pure competition is introduced this week to explain how different businesses look at
the revenue and cost structures. The topic of cost curves indicates the trade-offs between fixed
and variable costs as well as labor and capital.

Cost Concepts
OBJECTIVE: Identify production level to maximize profits.
Resource: Ch. 9 & 12 of Economics
Content

Ch. 9: Pure Competition

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Four Market Models

Pure Competition: Characteristics and Occurrence
Demand as Seen by a Purely Competitive Seller
Profit Maximization in the Short Run: Total-RevenueTotal-Cost Approach
Profit Maximization in the Short Run: Marginal-RevenueMarginal-Cost Approach
Marginal Cost and Short-Run Supply
Profit Maximization in the Long Run
Pure Competition and Efficiency

Ch. 12: The Demand for Resources

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Significance of Resource Pricing

Marginal Productivity Theory of Resource Demand
Determinants of Resource Demand
Elasticity of Resource Demand
Optimal Combination of Resources
Marginal Productivity Theory of Income Distribution

OBJECTIVE: Explain how to balance fixed and variable costs.

Resource: Ch. 8 of Economics
Content

Ch. 8: The Costs of Production

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Economic Costs
Short-Run Production Relationships
Short-Run Production Costs
Long-Run Production Costs

Student Guide
ECO/561 Version 9
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Applications and Illustrations

OBJECTIVE: Apply economic cost concepts in making business decisions.

Resource: Ch. 12 & 13 of Economics

Content

Ch. 12: The Demand for Resources

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Significance of Resource Pricing

Marginal Productivity Theory of Resource Demand
Determinants of Resource Demand
Elasticity of Resource Demand
Optimal Combination of Resources
Marginal Productivity Theory of Income Distribution

Ch. 13: Wage Determination

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Labor, Wages, and Earnings

General Level of Wages
A Purely Competitive Labor Market
Monopsony Model
Three Union Models
Bilateral Monopoly Model
The Minimum-Wage Controversy
Wage Differentials
Pay for Performance

Note. The information above is intended to help you complete your assignments. Read chapters
in their entirety, as indicated in the syllabus. Additional information from sections not outlined
above may be needed for classroom discussions.