Course 001: Topic 3

Microeconomic Theory

Topic 3: Production, Costs and the Firm

• Lecture Slides
• Problem Set
• Answer Key

Applications and Links

• Firm vs market: What determines the boundary of the firm and the market? Here is Ronald Coase's famous paper on the topic. American auto companies have traditionally been vertically integrated, while the Japanese car manufacturers relied more on subcontracting for parts. Michael Smitka reviews the evolution of this practice in the Japanese industry.
• Outsourcing: Many American manufacturers have been busy substituting expensive American labour for cheap Chinese labour, with profound implications for both economies. This New York Times article gives a nice account of the flight of American manufacturing to China.
• Crowdsourcing: A novel way to cut costs further by utilizing the power of "the crowd".
• Cost vs essence: IT technology can potentially revolutionalize higher education and retail. Amazon has changed the way we buy or read books but why does it hardly earn any profit? Online courses and other novel experiments are lowering costs and increasing access to higher education but they are also changing the very experience of learning.