Connecting the Firm’s Optimal Output and Input Decisions

Stephen Shmanske
    The paper presents a figure and some simple numerical/algebraic examples that highlight the connection between the firm’s calculation of the profit maximizing level of output and the firm’s calculation of the profit maximizing level of input. Essentially, these two problems are one and the same except they are solved in different dimensions. Put another way, each of these problems uses the same three types of underlying information but combines them in different orders to highlight either the output market or the input market. Every intermediate microeconomics textbook treats these two problems in different chapters and in most cases the opportunity to show the connection is not exploited. As such, many students think they are attempting to learn (or memorizing) two separate models when one intuitive approach, as developed in this paper’s simple figure, will suffice.

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