The form of the supply curve is fundamental to economic equilibrium theory. Economists believe that in order for a producer to increase supply, it must obtain a price increase. The curves they use for the theory are based on their concept that there is an increasing marginal cost of production. Meanwhile, accounting textbooks and "starting in business" books indicate the opposite. Because the fixed costs can be spread over more production, the marginal cost of output decreases. Economists apply some "cognitive dissonance" and try to explain it away with their claim that their economic "costs" include opportunity costs and it this influence that makes their marginal curves behave differently.

These opportunity costs allow for the fact that some other use of the capital could provide an alternative return. So in economics, the fixed costs should be increased by a normal return on the capital plus the depreciation on the capital. Some textbooks note that there are alternative uses for the factors of production, but really that is a matter for the producer or provider of the factor of production. The cash liquidity required to meet labour and other factor costs before the revenue is received must also be considered as part of the capital required. Working capital should be included in the calculation of opportunity costs. Typical "starting a business" books suggest that the fixed costs take into account the alternative available returns on the capital required to set up a small new business.

The economist's theory of opportunity costs indicates a higher fixed cost than a pure accounting evaluation, yet its influence is missing from economists' supply curves.

At low production levels, the economics of production will be dominated by the fixed costs plus the opportunity costs. At high production levels, the economics of production must be dominated by the per unit costs of production (material costs, energy costs, and labour costs).

The economist's graphs do not show this. They show the costs at high production levels, where there should be a dominance of per-unit-costs, rising linearly with the production level. This means that the total cost of production becomes dominated by the square of the production level. At low production levels, the economist's curve's show low costs of production. This is wrong. Of course economists will not tell you that this theory is wrong.

See Appendix 2 for a detailed analysis.

Not only that, but the whole demand/supply equilibrium intersection is a flawed concept. In the real world, the purchaser and the producer do not meet as inferred by the economist's demand and supply graph. In the real world there is almost always an intermediary (or middleman) which buys from the producer and who in turn sells to the purchaser. In many cases there is a whole chain of intermediaries that deal with each other before the product is consumed. There are significant prices increases along this chain that makes nonsense of the equilibrium diagram. The intermediaries can manage the relationship between the consumer and the producer to defy the economic model that economists imagine.

If that is not enough, economists assume that a demand curve is a stable relationship. It may well be that, if there are demand changes due to a price change, then a reversal of the price change may not mean a return along the previous demand relationship. Demand quantities may exhibit a "backlash" property. Economists will not tell us that they do not have sufficient data to justify their published demand relationships.