Article: Increasing the rigour and relevance of elementary microeconomics Journal: International Journal of Economics and Business Research (IJEBR) 2023 Vol.25 No.4 pp.522 - 552 Abstract: This paper redresses analytical weaknesses in elementary microeconomics from both short-run and long-run perspectives. By assuming variable production-time periods, the U-shaped average variable-cost curve in the short-run is shown to be valid only for perishable or non-storable products. The J-shape production curve, by contrast, is more appropriate for durable products that account for the vast majority of industrial production. While its validity has long been acknowledged in neoclassical economics, this paper subjects it to a graphical profit-maximisation analysis under both rigid- and flexible-production assumptions. To redress the reticence in elementary microeconomics to offer a profit-maximisation analysis under the long-run condition of variable investment factors, a basic profit equation is presented in terms of production/sales rate, production-system investment, and advertising investment. Profit-maximising production rate and investments are then determined graphically, leading to a rigorous explanation of economies of scales. The paper concludes by highlighting the role elementary microeconomics can play in introducing undergraduate students to strategic reasoning by integrating analytically the supply side and demand side of business management. Inderscience Publishers - linking academia, business and industry through research

Title: Increasing the rigour and relevance of elementary microeconomics

Authors: Brett D. Steele

Addresses: Department of Security Sciences, King Fahd Security College, P.O. Box 2511, Riyadh, 11461, Saudi Arabia

Abstract: This paper redresses analytical weaknesses in elementary microeconomics from both short-run and long-run perspectives. By assuming variable production-time periods, the U-shaped average variable-cost curve in the short-run is shown to be valid only for perishable or non-storable products. The J-shape production curve, by contrast, is more appropriate for durable products that account for the vast majority of industrial production. While its validity has long been acknowledged in neoclassical economics, this paper subjects it to a graphical profit-maximisation analysis under both rigid- and flexible-production assumptions. To redress the reticence in elementary microeconomics to offer a profit-maximisation analysis under the long-run condition of variable investment factors, a basic profit equation is presented in terms of production/sales rate, production-system investment, and advertising investment. Profit-maximising production rate and investments are then determined graphically, leading to a rigorous explanation of economies of scales. The paper concludes by highlighting the role elementary microeconomics can play in introducing undergraduate students to strategic reasoning by integrating analytically the supply side and demand side of business management.

Keywords: U-shaped curve; J-shaped curve; knife-shaped curve; production-time periods; flexible production; profit maximisation; production-system investment; advertising investment; short-run analysis; long-run analysis; business strategy.

DOI: 10.1504/IJEBR.2023.131166

International Journal of Economics and Business Research, 2023 Vol.25 No.4, pp.522 - 552

Received: 08 Jan 2021
Accepted: 08 Jun 2021
Published online: 01 Jun 2023 *

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Title: Increasing the rigour and relevance of elementary microeconomics

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