Micro in a Nutshell by J. Doug Ohmans WELCOME reader, to the musings of a 75 year-old. When Joe Easton fired me from my teaching job at Pueblo Community College, saying it was "at the graduate level," he was objecting to my originality. Yet these concepts are indubitably true, indeed have no human content. They are synthetic a priori truths. Nevertheless we shall give the apparatus the heuristics of widgets. In our instance, a maximum of five widgets are possible, at a per unit price of $11.00 (eleven dollars). By analogy, five positive instances of any kind could yield up to 55 units of positive well-being. Our brother and sister psychologists can excog- itate the latter. The diagram below--called Grid X--represents the positive/ positive (+/ +) upper right-hand quadrant of generic two-dimensional space. "P" is on the vertical axis because happiness might be described as heightened or lowered. "Q" or amount on the other hand, like time's arrow can be shown as horizontal distance traversed. To paraphrase Richard Nixon, "We are all marginalists now." If the cost, and/ or the price, of a series of widgets is unchanging then the marginal quantity will be the same as the average: a horizontal line. But costs to provide widgets may change. If their depiction is continuous, supply cost could tend at first to decrease but eventually increase (for several reasons). Grid X focuses on the latter upward-sloping portion of the cost curve when marginal cost is rising. Presumably the purpose of incurring costs is to achieve revenue, not money but ultimately well-being. Probably marginal revenue after increasing from zero diminishes as needs are satiated, and it is this latter continuously downward-sloping portion of the revenue curve which Grid X depicts. The diagram consists of four straight lines. However, only two sets of information are represented: cost and revenue, or supply and demand respectively. In both cases, the averages can be constructed from the marginals and vice versa. Intuitive common sense usually fails to make this distinction, and even economics was often blind to it until the 19th century. We shall unpack their usefulness by explicating the four points of intersection (1, 2, 3, and 4) plus two more (5 and 6) as follows. Number one (#1) was already mentioned, the point where AC (average cost) equals AR (average revenue). For any output greater than five widgets, AC will exceed AR and everything will be canceled. For lesser Q's (quantities) a jungle of reasoning about profitability emerges, but for Q = 5 there is no profit overall and therefore P (price) will be at a minimum. Under socialism with no profit, output would be maximized after allowing for an administrative class. Pure communism insists on the five widgets, implying absolute equality in well-being between producers and consumers, i.e. no profit. The founders of marginalism such as Jevons and Menger brought #2 (number two) into the light for the everyday businessperson: the point of maximum possible overall profit where MR (marginal revenue) equals MC (marginal cost). Any Q less than three here is undesirable for several reasons. As the immortal Charlie Drekmeier taught at Stanford in political science, the area between #2 and #1 comprises the bone of contention for politics, for political economy during the Sixties and for maximizing social well-being in the computer age. Unfortunately, if 'maximum possible overall profit' means minimum total Q of well-being, there must be something wrong with profit, however necessary to the right of communism. It remains to analyze #3, #4, #5 and #6. If Q at #3 is four widgets at 12 dollars, when MC equals AR profit is #3 minus #4 or four at ten dollars, equaling eight dollars. This amount occurs when AR (the price) is equal to the (vendor's breakeven) MC. Total profit at #4, when AC equals MR is of course the same eight dollars, at the expense of one unit of Q. And this amount is seen when the vendors' break- even AC for Q = 4 is barely covered by MR (her receipts). So hence the buyer finds offerings between #6 and #1 yet her best deals are between #4 and #1. The seller ranges feasibly between #5 and #1 but profitably between #5 and #3. The corresponding calculation for #5 and #6 yield a higher profit of 12 dollars (that is 3 x 13 – 3 x 9) yet at the expense of another unit of output and more inequality. If only three are produced, the producer's AR far exceeds her AC, and the average man suffers. __________________________________________________________________