ABSTRACT
The typical optimization problem in production is generally assumed to be one that
can be solved using the calculus of variations. This requires the standard production
function that is continuous in factor substitutability and is twice differentiable. In reality,
there are many production processes that do not conform to this traditional mould. This
chapter considers some alternatives that assist with optimization in a more practical
scenario where the traditional does not fit. The Linear Programming approach is shown
as a practical alternative where there are few process alternatives or, in the limiting
case, only one and where the plant is a multi-product, one with fixed resources. The
Dynamic Programming technique is shown as it applies to the case of discrete multi-
stage production processes and their optimization. Leibenstein’s concept of X-efficiency
is introduced to assist with understanding how firms may move on to their true production
possibilities frontier and reduce costs in order to optimize and to become more cost
competitive. This is particularly useful to firms facing increased pressures to lower
prices whether they operate domestically or in the global market.
