ABSTRACT
The theory of the producer deals with the production function (relationship between
inputs and outputs) and the way in which it is used by a producer to maximize profits.
The production function, unlike the consumption function, is not strictly a construct of
economics. It is supposed to specify a real (physical) relationship expressed in quantities
of inputs and outputs and is determined by technology. It is therefore considered to be
‘given’ to the firm. Production theory shows how the producer must use the knowledge
of the production relationships in the most profitable way, both in the short-and the long-
run. The producer must choose a level of output and the quantities of inputs consistent
with meeting the goal of profit maximization. An understanding of the optimization
process is essential therefore to any producer whether operating at the local, regional or
global level.
