Advances in Economics and Business Vol. 1(1), pp. 22 - 27
DOI: 10.13189/aeb.2013.010103
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The Use of Cost Functions for the Teaching of Natural Monopoly in Intermediate Microeconomics


Albert Ying-Je Huang*
Department of Business Administration, Minghsin University of Science and Technology, Hsinchu 30401, Taiwan

ABSTRACT

This study proposes a logarithmic long-run cost function and its relevant short-run cost lines which can be used to teach second-year or upper-level undergraduates the topic of natural monopoly in microeconomics courses. The long-run and short-run relationships among total cost, average cost, and marginal cost can be both mathematically and graphically illustrated. The Mean Value Theorem can be used to verify the condition of positive fixed costs. This study may make a contribution to intermediate-level microeconomics education by demonstrating how to combine basic calculus with simple graphs to facilitate the teaching of cost properties of natural monopoly. Some undergraduates' views on this method were collected and analyzed. The findings from the data analysis show that the method was generally well received by most of respondents in this study.

KEYWORDS
Natural Monopoly, Logarithmic Long-run Cost Function, Subadditivity, Economics Education, Intermediate Microeconomics

Cite this paper
Albert Ying-Je Huang . "The Use of Cost Functions for the Teaching of Natural Monopoly in Intermediate Microeconomics." Advances in Economics and Business 1.1 (2013) 22 - 27. doi: 10.13189/aeb.2013.010103.