Also available on Charlie's Angel: project.

Economic Theory: Analyzing Companies and Markets

Economists love little charts without numbers or scale.  It is one of their hobbies to draw little pictures about everything.  The argument for why perfectly competitive markets allocate a resource efficiently is given by two diagrams:

The y-value of the blue curve represents the cost of producing the next item after already having produced a number of items equal to the corresponding x-value along the curve.  Thus this shows the cost of producing the next item (the marginal cost) increasing as you produce more and more items (due to fixed capital in the short run and lack of economies of scale in the long term).  The red curve indicates how many of an item buyers would purchase at a given price.  Obviously the intersection of these two is where sellers will set price and