Clarifying Theoretical Intricacies through the Use of Conceptual Visualization: Case of Production Theory in Advanced Microeconomics

Abstract

Production theory, defined as the study of the economic process of transforming inputs into outputs, consists of two simultaneous economic forces: cost minimization and profit maximization. The cost minimization problem involves deriving conditional factor demand functions and the cost function. The profit maximization problem involves deriving the output supply function, the profit function, and unconditional factor demand functions. Nested within the process are Shephard"s lemma, Hotelling"s lemmas, direct and indirect mathematical relations, and other elements contributing to the dynamics of the process. The intricacies and hidden underlying influences pose difficulties in presenting the material for an instructor, and inhibit learning by students. Simply put, the primary aim of this paper is to facilitate the teaching and learning of the production theory realm of Economics through the use of a conceptual visual model. This paper proposes a pedagogical tool in the form of a detailed graphic illustrating the relationship between profit-maximization and cost-minimization under technical constraints, with an emphasis on the similarities and differences between the perfect-competition and monopoly cases. The potential that such a visual has to enhance learning when supplementing traditional context is discussed under the context of contemporary learning literature. Embedded in the discussion is an example of how we believe our model could be conceptualized and utilized in a real-world setting to evaluate an industrial project with an economic point of view.