ABSTRACT
In the theory of production and costs an investigation is made into the production decisions of individual firms and into the way in which the supply curve is related to the decisions. In one sense the theory of production and cost, that is, the entire theory of the firm, can be seen as a means to an end, namely the derivation of the supply curve. The concepts of production functions and cost curves have been used both to answer questions and to attack received theory. In these cases particular care must be taken to ensure that the empirical and theoretical concepts are the same, especially if the results of the empirical studies are being represented as a test of the theory. The theory of production consists of an investigation into the way in which the businessman – given the state of technology – combines various inputs to produce a stipulated output in an economically efficient fashion.
