Production in a Private Property Capitalist Economy

Abstract

To produce goods we use resources. The supply of resources is finite, however, and resources have alternative uses. Thus, the cost of producing a unit of any good is the value of other goods forgone. Each community has to decide how much of every good to produce and who should produce what. The former issue concerns the “output mix;” the latter is the issue of the efficiency of production. Production is technically efficient when the output of any good cannot be increased without reducing the output of some other good. The concept of efficiency in production requires that each good be produced by the lowest-cost producer of that good and that each additional unit of that good is produced by successively higher-cost producers. As in the case of goods that have been already produced, institutional arrangements affect the outcome.