Unit 3: Producer Theory and Investment
Every firm faces one primary constraint: a budget. The balance between costs and revenues will determine a firm's profit. Firms will seek to minimize costs; this implies that they are a profit maximizer. Every firm also has long and short run decisions. Remember that short run decisions allow for changing one of the factors of production, usually labor. Long run analysis is far more complex, because multiple factors of production are adjustable.

Economic and market conditions change over time. A firm must carefully weigh expected changes in the future when making decisions today. Risk can vary over time and can be anticipated and insured against. Uncertainty is more difficult to model and can significantly change the overall environment.

Completing this unit should take you approximately 12 hours.
- Upon successful completion of this unit, you will be able to:
  develop skills in doing economic cost analysis using calculus;
  apply basic tools that are used in many fields of economics, including household economics, labor economics, production theory, international economics, natural resource economics, public finance, and capital markets; and
  analyze the economic behavior of individuals and firms, and explore how they respond to changes in the opportunities and constraints that they face and how they interact in markets.
- 3.1: Costs
  - Introduction to Economic Analysis: "Chapter 9: Producer Theory: Costs" URL
    Read this chapter. Think about how constraints on a firm circumscribe its options. Consider the role of shadow values as these constraints are relaxed.
  - University of California, Berkeley: Glenn Woroch's "Economics 100A" URL
    Listen to Lecture 9.
  - Professor Arvan's "Profit Max Single Variable" Page
    Watch these videos and follow along as profit maximization is considered from various perspectives.
- 3.2: Dynamics
  - Introduction to Economic Analysis: "Chapter 10: Producer Theory: Dynamics" URL
    Read this chapter. Think about how costs vary with economies of scale of scope. What role does technology play?
  - University of California, Berkeley: Glenn Woroch's "Economics 100A" URL
    Listen to Lecture 8.
- 3.3: Investment
  - Introduction to Economic Analysis: "Chapter 11: Investment" URL
    Read this chapter. Ponder the recent financial market meltdown and the role of uncertainty in investment. What role does the government play in uncertainty and risk?
  - Yale University: John Geanakoplos' "Present Value Prices and the Real Interest Rate" URL
    Listen to Lecture 5.
- Unit 3 Assessment
  - Unit 3 Assessment Quiz
    Take this assessment to see how well you understood this unit.
    
    This assessment does not count towards your grade. It is just for practice!
    
    You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
    
    You can take this assessment as many times as you want, whenever you want.

Unit 3: Producer Theory and Investment