Fundamentals of production theory (Q1187680)

This text presents an axiomatic treatment of production theory. The text is divided into nine chapters. Chapter 1 presents the overview of the text, while Chapter 2 introduces the axioms of production structure, upon which the text is built. The chapter begins with a statement of output axioms. Then using the inverse relationship between input and output correspondences, it derives the input axioms. Some notions of efficiency are then defined and the properties of the efficient input and output sets are examined. Chapter 3 represents the production technology in terms of production functions. The existence theorem is proved and parametric production functions are presented. In this chapter, input and output distance functions are also introduced, as are joint production functions. Chapter 4 considers special cases of production structures, including piecewise linear production models, as well as homogeneous, homothetic, and ray homothetic production functions. Chapter 5 deals with the law of diminishing returns. Two concepts - namely, limitational and essential - of restrictions on inputs are introduced, discussed and related. Chapter 6 is concerned with the duality relationship between the production and the cost functions. The input efficiency theorem is introduced and the derivative properties of the cost functions are discussed. Chapter 7 models the production structure in cost and revenue terms by way of introducing cost- and revenue-restricted technology. It shows that the properties of these correspondences are similar to those of their unrestricted counterparts. Chapter 8 introduces a dynamic theory of production. The chapter analyzes the time support of the production activity in an infinite dimension. The existence of a dynamic production function is proved and two aspects of time substitution are examined. Chapter 9 derives measures of input and output efficiency. The chapter shows that technical efficiency can be decomposed into three component measures, namely, the scale, congestion and the purely technical measure of efficency. A cost approach to the scale measure is introduced and related to input-based scale efficiency. The text has made no attempt to address the econometric applications of the theory. However, its coverage of the fundamentals of production theory is rigorous, comprehensive and coherent, although I would like to see that Chapter 9 be expanded to include some discussion of technological change. The text is a good reference for advanced Ph.D. students interested in the axiomatic approach to production theory. The problem set at the end of each chapter provides useful exercises for the students.