Production theory

Production theory is like baking a cake.

Imagine you want to bake a cake for your friends. First, you need to decide how much cake you want to make. You might choose to make a small cake or a big cake. The amount of cake you want to make is called the level of output in production theory.

Once you know how much cake you want to make, you need to figure out what ingredients you need. You have flour, sugar, eggs, and butter to choose from. You need to use the right amount of each ingredient to make sure your cake tastes good. Figuring out how much of each ingredient to use is like finding the optimal input mix in production theory.

Now you are ready to bake your cake. You need to use the right temperature and bake it for the right amount of time. If you bake it too long or too hot, the cake might not taste good. This is like producing your output by using your optimal input mix.

Just like you might try different ingredients or baking times to make your cake taste better, businesses might try different methods or resources to produce their products. Production theory helps businesses figure out the optimal input mix and methods to produce the right amount of product at the best quality and lowest cost.