A Production and Cost Experiment for Use in the Principles of Microeconomics

Paul M. Mason

Production and Firm Behavior

Non-computerized experiment

This paper presents a new, hands-on production and cost experiment that instructors can use in principles of microeconomics to introduce the fundamental concepts of revenues, production, and costs. The experiment provides an opportunity for the students to become directly involved in a production process (with incentives to maximize profits), and then facilitates the derivation of the production function and all of the standard short-run cost relationships based on data that the class generated. Students assimilate the theory more rapidly and comprehensively this way, allowing the instructor to cover these issues more effectively in preparation for their application in the market models. However, careful construction can also provide empirical exposure to quality control, innovations in production, specialization of labor, just-in-time delivery, etc. Several microeconomics experiments have been presented by others to explain supply and demand, collusion, scarcity, and monopoly behavior. This paper introduces a comprehensive new experiment to identify cost curves and production concepts similar to others available on this site and elsewhere, but more extensive in its coverage and flexibility.