Chapter 4: Cost Theory
This is a video associated with Chapter 4, Section 4.2 of the text Economic Essentials for Business, Management and Engineering. It covers the theory of fixed, variable and marginal costs, as well as measures of quasi-rent, more commonly referred to as producer surplus. The first part of the video examines how average and marginal costs are determined from total cos. The middle part discusses quasi-rent (producer surplus) in relation to Ricardian and von Thuenen rents. The latter comprise forms of resource rent in that they deal with land quality and locational differences. Resource and scarcity rents can be taxed without affecting the output decisions made by firms. Quasi-rent or producer surplus constitute a return to fixed factors of production, with attempts to tax them leading to reduced investments. The latter part of the video constitutes an application of the theory to the measurement of rent (and taxation of rent) in forestry. An important contribution relates to the distinction between intensive and extensive margins of production.