Optimising on the frontier

I’m writing this purely from a theoretical viewpoint, and perhaps it can feed into practice and application but I’ve no intention to address that in this post. From a supply-side perspective, there’s no single optimal point of production combinations. The production possibility frontier involves a continuous combination of possibilities that would be “optimal” from a technical efficiency and resource availability perspective.

In Economics, the optimal point of production is obtained by specifying some sort of aggregated utility function – in other words, asking the demand-side of the picture. Figuring out the demand and specifying it is just as important as thinking about how to produce because it helps determine what is to be produced.

Yet day in and out we seem to act as though the market is always calling the shots, pinning down our behaviours. A society that is caught up with trying to produce more and more, and scaling up without understanding the demand-side of the equation will only find itself in misery. We cannot always assume our demand function or aggregated utility to behave in the same way, to comply with the kind of assumptions made in the Economics discipline.