Production Theory

Production Theory involves some of the most fundamental principles of economics. It defines the relationships between the prices of the commodities and productive factors on one hand and the quantities of these commodities and productive factors that are produced on the other hand. Production theory is a process, and as such it occurs through time and space. Because it is a flow concept, production is measured as a “rate of output per period of time”. It is the act of creating output, a good or service which has value and contributes to the utility of individuals.