(Chapter 4) The economics of production
(4.a) A primer on tangent lines
(4.b) The 3 stages of production
(4.c) Marginal product
(4.d) Costs, revenues, and profits
(4.e) When to grow
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Practice Questions

(4) The economics of production

(4.a) A primer on tangent lines


(4.b) The three stages of production

Video 1—The three stages of production

Video 2—Bamboo in the first stage of production

Figure 1—Nitrogen fertilizer in the third stage of production

(4.c) Marginal product


First, a little motivation for studying what can seem an abstract and quite boring concept: marginal products. When the communists took power in China they forced farmers to adopt new, "scientific" methods for improving rice yields (so you know, almost anything that broke with tradition was considered "scientific"). These were no dumb men. You can't be stupid and take over one of the largest countries in the world by defeating a U.S.-backed government. Some of the new agricultural methods they forced farmers to use was, however, for those who know anything about agriculture, very dumb. They assumed that adding more fertilizer increases yields by the same amount, no matter how much fertilizer had already been applied. The peasant farmers forced to do this knew it wouldn't work, and it didn't, helping to contribute to one of the largest famines to ever occur.

What the Chinese communists didn't understand was the concept of marginal product and how it changes as the use of an input is increased. To prevent such famines from occurring again, it is important that you do understand it.

New innovations in farm techniques now began to be widely reported and popularized. A revolutionary method of planting rice was called "deep ploughing and close planting" and was promoted in the summer of 1958. The theory behind it was that, if two tons of rice could be grown on a given plot of land by planting the seedlings twelve inches apart at a depth of six inches, then far larger yields could in principle be achieved by planting the young seedlings twice as close together and at twice the depth—and with twice as much fertilizer added per acre of rice...
—Baum, Richard. "Lecture 18: The Great Leap Forward 1958-1960." The Fall and Rise of China. The Great Courses. The Teaching Company.

Mastering marginal product

Instead of a video I am posting these slides I used in class.

(4.d) Costs, revenues, and profits

Introductory video about Oklahoma wheat


Use these slides as notes


Video 1—Costs

Video 2—Profits

Video 3—Why we don't maximize yield?

Video 4—From Total costs to average costs (wheat price = $4 / bushel)

Video 5—What if price is $2.25?

Video 6—What if price is $1.75?

(4.e) When to grow

Notes (ignore first slide)

Available here.


Video 1—From Total costs to average costs (wheat price = $4 / bushel)

Video 2—What if price is $2.25?

Video 3—What if price is $1.75?