Producers theory

The producers theory is concerned with the behavior of firms in hiring and combining productive inputs to supply commodities at appropriate prices. Two sets of issues are involved in this process: one is the technical constraints, which limit the range of feasible productive processes, while the other is the institutional context such as the characteristics of the market where commodities and inputs are purchased and sold. The chapter describes the set of axiomatic approaches to production technology and the neoclassical theory of the multi-product and multi-input firm. It is an attempt to set forth the general framework of analysis that underlies neoclassical producer decision theory. The chapter discusses the properties of the production function, its various forms, and applications of the duality principles and also provides a brief discussion of the Cambridge–Cambridge controversy insofar as it pertains to the existence and usefulness of production functions. The chapter also presents three special cases of the theory of the firm in which new research has appeared, specifically dynamic input disequilibrium models, response to regulatory constraints, and optimal price and output decisions in multi-product firms.