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Principles of Microeconomics Introduction

DiscussEconomics is about to being a series on introductory principles of microeconomics. This is perfect for beginner economists, those looking to brush up on some basic terms, and first year University students. I’m assuming that you can differentiate between the studies of micro and macro economics so don’t expect an explanation here!

Introduction to Microeconomics



There are fundamental assumptions when using microeconomic models while you’re trying to explain consumer and market behaviour. Firstly, firms (businesses) are assumed to operate with the fundamental intention of maximizing profits. Here are some more terms that are useful:

Total Revenue (TR):

    Is the amount that firms receives for the sale of its product
    TR = Price x Quantity
    = P x Q

Recall that a firm’s cost of production include:

    Explicit costs – direct money outlay for factors of production.

    Implicit or “imputed” costs – Do not involve a direct money outlay.

Cost-output relationships

Fundamental point in cost analysis

***A functional relationship exists between the costs of production and the rate of output per period of time (ie. productivity)***

Cost function:

    Indicates what the cost will be at alternative output rates

    Cost = f (output)

But we know from our production analysis that:

    outputs = f (inputs)

***Consequently, the level and behaviour of costs as a firm’s rate of output changes depend on:

    1. The character (shape) of the production function;
    2. The prices the firm must pay for its inputs.

[tags]intro microeconomics, introductory microeconomics, microeconomics, cost production[/tags]

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