Question

State theory of production and distribution

Answer 1

Dear Akshat,

Theory of Production deals with the production decisions of producers in different types of markets. It explores how a producer takes various production decisions. It highlights how a producer combines different inputs (given their prices) in order to minimise cost of production and maximise profits.

Theory of Distribution explores how national income is distributed in a country. In other words, we analyse how the income arising from the total production of an economy is distributed in the form of wage, profit, rent and interest among the different factor owners (labour, entrepreneur, land and capital).