ABSTRACT
We now begin to examine more closely the supply side of an economy – that is, we attempt to explain how suppliers behave. To commence we draw on ideas traditionally associated with the theory of the firm, a theory popularised by Marshall (1920) to account for the production behaviour of firms involved in manufacturing. The theory proceeds from the relatively simple premise that providing a firm is aware of its production costs and revenue streams, it should be able to identify a specific profit maximising position. Clearly this requires a detailed analysis of the stream of costs and revenues that a firm faces as it reaches its optimum scale of production. In this chapter, we examine closely the nature of profits, productivity and costs relating to design, construction, maintenance, management, conservation and refurbishment, and in Chapter 8 we concentrate more on the revenue side of the picture. Before commencing this chapter, therefore, it may be useful to review Key Points 1.2, 2.4 and 5.1 to recap on basic ideas relating to models, markets, resource allocation, economic efficiency and the basic law of supply.
