A Study on the Pure Theory of Production

A Study on the Pure Theory of Production

A Study on the Pure Theory of Production

A Study on the Pure Theory of Production

Excerpt

While working on this essay I have often felt like a composer who writes a rhapsody on old folk tunes. The main theme has been clear to me from the beginning; it is nothing but the folk tune of all economists, that a firm should so plan its production that the discounted marginal cost of its output is equal to the discounted marginal revenue and every productive service is employed until its discounted marginal value productivity equals its discounted marginal cost. My contribution, therefore, is not one of melody but of arrangement, (mathematical) orchestration and variation. In the first part of the essay the familiar theme is gradually built up against the simplest setting: a single firm produces a single commodity in a single "closed" time period; not until the fourth chapter is the theme developed in full. The fifth and sixth chapters are variations upon the preceding motif: but the setting is less restricted; more variables are allowed to play. Even when I discuss "joint" production and "capitalistic" or, as I have preferred to call it, "poly-periodic" production, the analysis ends upon the same well-known melody.

Although economists have long recognized the main relationships of the theory of production, these relationships have not been co-ordinated in a single body of theory -- except in such works as those of Frisch and Schneider -- but have been scattered in isolated fragments throughout cost theory, capital and interest theory and the theory of distribution. To bring together and co-ordinate in one consistent scheme the different relationships of the theory of production has been the main purpose of this essay. I have tried particularly to emphasize the bearing . . .

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