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Producer Behavior 6
6.1 The Basics of Production
6.2 Production in the Short Run
6.3 Production in the Long Run
6.4 The Firm’s Cost-Minimization Problem
6.5 Returns to Scale
6.6 Technological Change
6.7 The Firm’s Expansion Path and Total Cost Curve
6.8 Conclusion
At the beginning of Chapter 4, we imagined being an executive at Samsung trying to develop the next Galaxy smartphone for the market and deciding what features to add so consumers would find it desirable. Now suppose you’ve done your market analysis and selected the features but now must produce the phone. How many do you want to make? What mix of inputs are you going to use to do so? What size factory? How many employees? How much glass? What will this cost? Suppose the new Galaxy is an even bigger hit than you predicted, and you want to ramp up production. If you can’t easily adjust the size of your factory, will your factory’s size limit your ability to make more units by hiring more employees? And how much will costs rise if you increase production levels?
Any producer of a good or service faces these types of questions and others like them. The economics driving those questions, and their answers, are the focus of our analysis over the next several chapters. Chapter 4 and Chapter 5 were about consumer behavior, which determines the demand side of markets. With this chapter, we turn our attention to producer behavior, which drives the supply side of markets.