Production Possibility Frontier

How to Draw a Production Possibility Frontier

The production possibility frontier (PPF) is a graph that shows all maximum combinations of output that an economy can achieve, when available factors of production are used effectively. It is also known as the transformation curve or the production possibility curve. The PPF is a great concept because it beautifully […]

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How to Calculate Economic Profit

How to Calculate Economic Profit

Economic profit is defined as the difference between total revenue and total cost, including both explicit and implicit cost. The inclusion of implicit cost is what separates economic profit from the more common accounting profit (which only accounts for explicit cost). Even though the latter is more commonly used in […]

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How to Calculate Marginal Revenue

How to Calculate Marginal Revenue

Marginal revenue is defined as the revenue gained by producing one more unit of a product or service. Therefore, it is sometimes also referred to as the revenue of the last unit. In economics, the concept of marginal revenue is very important because it helps firms to make efficient production […]

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How to Calculate Marginal Cost

How to Calculate Marginal Cost

Marginal cost is defined as the cost incurred by producing one more unit of a product or service. Therefore, it is sometimes also referred to as the cost of the last unit. The concept of marginal cost is extremely important in economic theory because it is one of the foundations […]

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The Four Types of Economic Utiltiy

The Four Types of Economic Utility

In the field of behavioral economics we often come across the term utility. In this context, utility refers to the perceived value (i.e. usefulness) an individual receives when they purchase a good or service. There are four different types of utility: form utility, place utility, time utility, and possession utility. […]

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How to calculate a linear supply function

How to Calculate a Linear Supply Function

Supply and demand functions play a crucial role in economics. They help us analyze and understand the most fundamental economic concepts and issues (e.g. the law of supply and demand, calculating producer surplus). For the sake of simplicity, we often assume them to be linear, which makes it much easier […]

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How to Calculate a Linear Demand Function

How to Calculate a Linear Demand Function

In economics, supply and demand functions come in many shapes and sizes. However, for the sake of simplicity we often assume they are linear. This makes it much easier to compute them, which in turn is important to analyze and understand many basic economic concepts (e.g. calculating consumer surplus). Therefore, […]

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The Three Economic Sectors

The Three Economic Sectors

According to the three-sector theory, all economic activity can be classified into one of three sectors: the primary sector, the secondary sector and the tertiary sector. As a rule of thumb, we say the more advanced an economy is, the more its focus shifts from the primary, through the secondary […]

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Types of Costs of Production

Types of Costs of Production

To analyze and understand firm’s production decisions it is important to know the different types of costs they face during this process. There are a number of different types of costs of production that you should be aware of: fixed costs, variable costs, total cost, average cost, and marginal cost. […]

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Factors that Cause a Shift in the Supply Curve

Factors that Cause a Shift in the Supply Curve

The supply curve shows how much of a good or service sellers are willing to sell at any given price. However, it is not constant over time. Whenever a change in supply occurs, the supply curve shifts left or right (similar to shifts in the demand curve). An increase in […]

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