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PUBLICATIONS OF THE
BUREAU OF BUSINESS AND ECONOMIC RESEARCH
Previously published in this series:
A TREATISE O N W A R INFLATION THE E C O N O M I C S OF THE PACIFIC COAST

by William Fellner (1942) PETROLEUM INDUSTRY. PART 3: PUBLIC
POLICY T O W A R D COMPETITION AND P R I C I N G
by Joe S. Bain (1947)
BREAD AND D E M O C R A C Y IN G E R M A N Y
by Alexander Gerschenltron (1943)
THE STRUCTURE OF TRANSCONTINENTAL
RAILROAD RATES
THE E C O N O M I C S O F THE PACIFIC COAST
by Stuart Daggett and John F. Carter ( 1947)
PETROLEUM INDUSTRY.
PART I: MARKET STRUCTURE
by Joe S. Bain (1944) THE C H A N G I N G COMPETITIVE STRUCTURE OF
THE W H O L E S A L E G R O C E R Y TRADE:
A CASE STUDY OF THE LOS A N G E L E S MARKET
LAND TENURE PROBLEMS IN THE SANTA FE
by Ralph Cassady, Jr., and Wylie L. Jones (1949)
RAILROAD GRANT AREA
by Sanford A. Moslt (1944)
T A X I N G M U N I C I P A L BOND I N C O M E
NATIONAL POWER AND THE STRUCTURE by Lyle C. Fitch (1950)
OF FOREIGN TRADE
by Albert O. Hirschmann (1945)
CRISIS IN BRITAIN: PLANS AND ACHIEVE-
MENTS OF THE LABOUR GOVERNMENT
THE E C O N O M I C S O F THE PACIFIC COAST
by Robert A. Brady (1950)
PETROLEUM INDUSTRY. PART 2: PRICE
BEHAVIOR AND COMPETITION
by Joe S. Bain (1945) SCIENTIFIC METHOD FOR AUDITING.
APPLICATIONS OF STATISTICAL S A M P L I N G
C A L I F O R N I A BUSINESS CYCLES THEORY TO AUDITING PROCEDURE
by Frank L. Kidner ( 1946) by Lawrence L. Vance
MONETARY POLICIES AND A COMPREHENSIVE CLASSIFIED MARKETING

FULL EMPLOYMENT BIBLIOGRAPHY. PARTS I AND II
by William Fellner (1946, 1947) by David A. Revzan ( 1951)
application of
linear programming
to the theory of the firm
A P P L I C A T I O N OF L I N E A R
PROGRAMMING TO THE
T H E O R Y OF T H E FIRM
INCLUDING AN ANALYSIS OF MONOPOLISTIC FIRMS
BY NON-LINEAR PROGRAMMING
A PUBLICATION OF T H E BUREAU OF BUSINESS AND

ECONOMIC RESEARCH, UNIVERSITY OF CALIFORNIA
PUBLISHED BY THE UNIVERSITY OF CALIFORNIA PRESS
BERKELEY AND LOS ANGELES NINETEEN FIFTY ONE
University of California Press
Berkeley and Los Angeles, California
C a m b r i d g e University Press, London, England
C o p y r i g h t 1951
By the Regents of the University of California
Printed in the United States of America
BUREAU OF BUSINESS AND E C O N O M I C R E S E A R C H
William Crum, Chairman
Robert A . Brady Charles A . Gulick Roy W . Jastram Maurice Moonitz
Sanford A . Mösle, Acting Director
The opinions expressed in this study

are those of the author. The functions of the
Bureau of Business and Economic Research
are confined to facilitating the prosecution of
independent scholarly research by members of the faculty.
Preface
This monograph, except for the last part of chapter iii.was pre-
pared as a doctoral dissertation in the Department of Economics,
University of California. The committee in charge of the re-
search was headed successively by Professors William Fellner and
R. A. Gordon. Chapter iv, especially, bears the imprint of Pro-
fessor Gordon's strict and constructive criticisms. Another mem-
ber of the committee, Professor G. C. Evans of the Department of
Mathematics, served as the guardian of the author's mathematical
conscience. Whatever nathematical elegance the treatment con-
tains must be credited to the high standards which Professor
Evans imposed and insisted on.
All work in the field of linear programming must be deeply

indebted to Dr. George B. Dantzig of the Department of the Air
Force, who opened up the field and has been one of its most pro-
ductive investigators. But Dr. Dantzig's contribution to the
present monograph goes far beyond that. He gave much of his
time to instructing the author in the concepts and methods of
linear programming and after the research was under way allowed
his patience to be imposed on many times when difficulties be-
yond the mathematical competence of the author threatened to
bring the project to an ignominious halt. Professor A. W.
Tucker, Princeton University, and Professor E. W. Barankin,
University of California, were also consulted about mathematical
difficulties, and the author is gratified to note that each of
them subsequently undertook mathematical studies of first im-
portance in problems suggested by this thesis. Professor
Tucker, especially, by his pioneering study of " Non-Linear Pro-
g r a m i n g , " cleared the way for the treatment of quadratic pro-
gramming, which appears in chapter iii.
If this volume were dedicated to anyone, it would be to the

officers and officials who staff the headquarters of the United
States Air Force. These far-sighted men, faced with the difficul-
ties of administering one of the largest integrated organizations
in the world, have had the vision required to turn away from tra-
ditional methods of administration and to encourage an ambitious
vii
program of research into the theory of progranming. The research
whose results are reported in this monograph was originally under-
taken as part of that research program and was' inspired to a great
extent by the needs of the Air Force. It is the author's earnest
wish that these results may assist in some small measure in easing
and improving the work of Air Force headquarters. But, of course,
the author also feels that the theories here developed invite far
wider application.
I wish to thank the various publishers who have given

permission for the use of quotations from their publications, in-
cluding:
Harper & Brothers for permission to quote from Kenneth

E. Boulding, Economic Analysis, 1941.
Harvard University Press for permission to quote from
Paul A. Samuelson, Foundations of Economic Analysis, 1948.
Houghton Mifflin Company for permission to quote from
Frank H. Knight, Risk, Uncertainty and Profit, 1921.
The Macmillan Company for permission to quote from Joan
Robinson, The Economics of Imperfect Competition, 1948.
Oxford University Press, Inc., for permission to quote
from J. R. Hicks, Value and Capital, 1941.
University of California R. D.
Berkeley, California
April 13, 1951
viii
Contents
I. Two Approaches to the Theory of the Firm 1
1. Historical Perspective 1
2. The Marginal Analysis 5
3. Basic Concepts of Linear Programming 12
II. The Competitive Firm Using Fixed Factors 23
1. Formulation of the Problem 23

2. The Basic Theorem 27
3. Computational Procedure 31
4. The Three Assumptions 35
5. Firm with Two Fixed Factors 39
6. Price Imputation for Fixed Factors 45
7. The Concept of the " Dual" 51
III. Production Scheduling for Monopolized Products 53
1. The Monopolist's Problem 53

2. The Optimum Program 56
3. Application to Monopsony 65
4. Quadratic Programming 67
IV. Assumptions, Limitations, and Possibilities 79
1. General Postulates of Maximization 79

2. The Specific Postulates of Linear Programming .... 80
3. The Problem of Time 85
4. Variations of Linear Programming 88
5. What is Linear Programming 93
References 95
ix
CHAPTER I
Two Approaches
to the Theory of the Firm
1. Historical Perspective.
Hie modern theory of the firm as expounded by Chamberlin (3)*,

Hicks (16), Robinson (31), Samuelson (32), Viner (38), et al.,
traces its lineage back to Ricardo's discussion of the problems
of English agriculture a century and a half ago. Ricardo and his
contemporary, Malthus, share credit for the development of the
concept of " deceasing returns," the progenitor of the modern U-
shaped cost curve. The classicists also used the idea of incre-
mental variation of factors of production and thus set the stage
for the modern " marginal" analysis. The fact that an analytic
apparatus which was inspired by the predicament of early nine-
teenth-century English agriculture is so deeply embedded in the
analysis of modern industrial problems calls for a reconsidera-
tion of the appropriateness of the model.
Ricardo's theory (30) was based on a highly abstracted model

of a single type of farming: English wheat cultivation. He
grouped all things necessary for the cultivation of wheat into
three factors of production: land, labor, and capital. He as-
sumed that these factors of production could be combined in, es-
sentially, any proportions desired. The technical process in-
volved was considered from a broad point of view which ignored
the existence of subsidiary steps and intermediate products; the
three necessary factors were applied and after a proper interval
the final product emerged. The entire process resulted in a
single, homogeneous comnodity—wheat.
* Numbers in parentheses refer to the references at the end of the

volume.
1
2 LINEAR PROGRAMMING AND THEORY OF THE FIRM
Ricardo applied this model, essentially, to calculate the dis-

tribution of product between the landowner, who supplied the land,
and the farmer, who provided the capital. He assumed that the
total quantity of land was fixed and this total could be subdivid-
ed into the amounts of land of first, second, third, etc., quali-
ties, which were also fixed. It is now that the technique of in-
cremental variation and the postulate of decreasing returns enter.
As new capital seeks to enter agricultural production, it may be
applied to new,and less productive, land or to the more intensive
cultivation of land already in use. In either case, it will give
rise to a smaller physical product per unit than capital previous-
ly applied. An increased application of capital to a fixed supply
of land will therefore tend to raise rents, lower interest, and in-
crease the real cost of production. It is not necessary for our
purposes to describe Ricardo's theory further; the foregoing is
sufficient to show that it contained the essentials of the modern
analysis of the valuation of factors of production and the alloca-
tion of resources.
This model answered rather well to the problem which interested

Ricardo. Almost as soon as it was laid down, however, economists
began to apply it to a broader range of questions and to make the
necessary emendations. All that was necessary, really, was to
combine the Ricardian technique of analysis with Say's concept of
firm (34) which purchased the services of the three factors of
production in a competitive market. Within a generation Nassau
Senior adapted the Ricardian mode of analysis to the study of in-
dustrial production by treating the three factors of production
more synmietrically than Ricardo had (35). Contemporaneously with
Senior, Cournot made the pioneer application of the differential
calculus to the theory of the firm (5), but this did not bear
fruit until the 1870's when Jevons (17), Menger (27), and their
foil owers introduced the formal methods of marginal analysis. As
applied to the theory of production, the marginal analysis was an
improvement more in form than in content, however. The marginal-
ist contribution was essentially a more symmetrical, compact, and
formal technique for handling the received Ricardian model. The
marginalist analysis of the behavior of the firm and the alloca-
tion of productive resources has enjoyed practically complete ac-
ceptance for the past seventy-five years, so that it is fair to
say that in spite of more than a century of refinement, the analysis
TWO APPROACHES T O THE THEORY OF THE FIRM 3
of production to t h i s very day i s based upon t h e o r i g i n a l R i c a r -

dian-Malthusian concepts.
Hie c l a s s i c a l Ricardian a n a l y s i s was a study of long-run eco-

nomic e q u i l i b r i u m , of " t h e high theme of economic p r o g r e s s . " But,
as our quick survey has j u s t i n d i c a t e d , as i t passed through suc-
c e s s i v e hands i t evolved i n t o a theory of e n t r e p r e n e u r i a l behavior,
t h a t i s i n t o an e x p l a n a t i o n of t h e f a c t o r s which govern an e n t r e -
p r e n e u r ' s d e c i s i o n s . In the 1 9 3 0 ' s t h i s a p p l i c a t i o n of the theory
underwent r a p i d r e f i n e m e n t , e s p e c i a l l y a t the hands of Chanberlin
( 3 ) , Robinson (31), Viner (38), and t h e i r f o l l o w e r s . A r e a c t i o n
a g a i n s t t h i s r e f i n e d a p p l i c a t i o n of the marginal approach i s now i n
p r o g r e s s . Hall and Hitch (14) and L e s t e r (25) have made f i e l d s t u d -
i e s of b u s i n e s s decision-making which show t h a t the c o n s i d e r a t i o n s
which businessmen t a k e i n t o account are q u i t e d i f f e r e n t from the
concepts of the marginal a n a l y s i s and perhaps i n c o n s i s t e n t with i t .
Gordon (13) and Eiteman (11) have r e i n f o r c e d t h e s e doubts by show-
i n g t h a t i t i s h a r d l y conceivable t h a t businessmen can o b t a i n the
i n f o r m a t i o n which the marginal a n a l y s i s assumes they have a t t h e i r
d i s p o s a l . Dean (10) and L e s t e r (25) have made e m p i r i c a l s t u d i e s
which r a i s e q u e s t i o n s as to the v a l i d i t y of the shape of the s h o r t -
run production curve assumed by the marginal a n a l y s i s .
I t deserves to be r e p e a t e d , of course, t h a t t h i s a r r a y of c r i t i -
cism of t h e marginal a n a l y s i s b e a r s most p a r t i c u l a r l y on i t s a p p l i -
c a t i o n t o e n t r e p r e n e u r i a l behavior in the r e l a t i v e l y s h o r t run,
b u t , s i n c e a l l d e c i s i o n s of i n d i v i d u a l s and f i r m s are s h o r t - r u n de-
c i s i o n s , these c r i t i c i s m s concern the e n t i r e theory of t h e f i r m .
The c r i t i c s have a l s o a t t e n p t e d the c o n s t r u c t i v e t a s k of answer-

ing the question: I f t h e marginal a n a l y s i s does not explain e n t r e -
p r e n e u r i a l behavior, what does? The s t r o n g i n f l u e n c e of custom and
the concept of a " f a i r p r o f i t " have been emphasized by Hall and
Hitch and L e s t e r on the b a s i s of t h e i r empirical s t u d i e s . Eiteman
has sketched a theory which i s based on the concept of m a i n t a i n i n g
normal i n v e n t o r i e s and a normal r a t e of turnover of working c a p i -
t a l . A very ambitious attempt was made by von Neumann and Morgen-
s t e r n (40) t o explain e n t r e p r e n e u r i a l and market behavior i n terms
of a theory of competitive s t r a t e g y . U n f o r t u n a t e l y , t h e empirical
t h e o r i e s a l l r e s t on t h e c o n t e n t i o n t h a t businessmen attempt t o
maintain sane s o r t of " n o n n a l " r e l a t i o n s h i p s i n the p r i c e s t r u c -
t u r e s of t h e i r i n d u s t r i e s and the f i n a n c i a l s t r u c t u r e s of t h e i r
firms. Hie process by which these norms come to be established
or modified is still largely conjectural. In essence these the-
ories assert that any equilibrium position, once attained, ac-
quires a sort of social inertia which helps to perpetuate it.
It is perhaps this superficial level of explanation, this aban-
donment of the maximization principle in favor of the non-ration-
al following of sociological norms, which has deterred economists
by and large from accepting the conclusions of this school as a
satisfactory explanation of entrepreneurial behavior.
The von Neumann and Morgenstern theory attempts to supplant the
marginal analysis from another direction. It is ultra-rational.
It assumes that all businessmen are oligopolists engaged in an un-
remitting strategic struggle, each to maximize his own profits at
the expense of his competitors and the world at large. Unfortu-
nately for this theory, as von Neumann and Morgenstern themselves
show, the rational conclusion of such a struggle is the formation
of monopolistic cartels; the assumption of oligopoly is itself in-
consistent with the assunption of complete rationality. Von
Neumann and Morgenstern attempt to salvage the theory by introduc-
ing an irrational element, the so-called "standards of behavior"
(40, p.40) but these remain ill-defined and do not lead to stable
responses to market situations. Von Neumann and Morgenstern's
theory is open to other criticisms, too, but this is not the
place to review their monumental work.
In recent years interest has been growing in a rather different
approach to economic and managerial problems, the "input-output"
or "linear progranming" approach. Even at this writing the con-
tent and methodology of linear progranming are in so formative a
state that it would be premature to attempt to delimit them. It
represents a confluence of several diverse streams of development:
mathematical studies of the geometry of higher spaces dating back,
probably to Laplace and certainly to Weyl (42), a simple dynamic
economic model due to von Neumann (39), Leontief's matrix descrip-
tion of the interrelations of American industry (23), and Wood and
Dantzig's research into the managerial problems of the Air Force
(9, 36, 37, 43, 44, 45). Research into the theory of games by von
Neumann and others certainly helped pave the way for linear pro-
granming which mathematically, though not conceptually, is a close-
ly related problem. In spite of the long existence of these varied
anticipatory developments, the first integration of them into the
viewpoint and the tool which is now called linear progranming was
probably achieved by Dantzig in 1947.
TWO APPROACHES TO THE THEORY OF THE FIRM 5
Hie o r i g i n a l appearance of l i n e a r progranming, then, was in the
f i e l d of s c i e n t i f i c management r a t h e r than i n t h a t of economics
(and t h i s may account f o r the f a c t t h a t l i n e a r progranming l a r g e l y
n e g l e c t s t h e demand s i d e of economic problems). Hie i n t e r e s t of
economists i n the new technique awakened quickly, however, and
Koopmans (20 and 22) took the lead i n s t u d y i n g the a p p l i c a t i o n of
l i n e a r progranming t o problems of economic w e l f a r e . Hie p r e s e n t
essay appears t o be the f i r s t attempt t o apply l i n e a r progranming
to the s h o r t - r u n behavior of the i n d i v i d u a l f i r m or e n t r e p r e n e u r
and t o a s s e s s i t s value f o r d e a l i n g with t h i s problem.
Linear programming w i l l be d e s c r i b e d in t h i s book i n terms of

i t s r e l a t i o n s h i p to the t h e o r y of t h e f i r m . Hie b e s t s t a r t i n g
p o i n t w i l l be an o u t l i n e of t h e formal s t r u c t u r e of the marginal-
i s t approach to t h i s same theory.
2. The Marginal Analysis
Hie marginal a n a l y s i s ( l i k e l i n e a r programming) i s concerned with

the d e c i s i o n s of an economic u n i t c a l l e d a firm. This firm, i t
i s assumed, has j u s t one motive: to maximize i t s p r o f i t s , or the
excess of i t s revenues over i t s expenses. Hie d e c i s i o n s which
the f i r m has to make are of t h r e e s o r t s : technical decisions,
which determine the methods of production to be enployed, q u a n t i t y
d e c i s i o n s , which concern the amount of goods t o be o f f e r e d and
s o l d , and marketing d e c i s i o n s which deal with procedures f o r a l -
t e r i n g , i f p o s s i b l e , the demand curves of the f i r m ' s customers.
I t should be noted t h a t a firm in pure competition cannot a f f e c t
the p r i c e s a t which i t buys and s e l l s , while a monopolist can
determine e i t h e r the p r i c e s a t which he buys and s e l l s or the
q u a n t i t i e s which he buys and s e l l s but not both.
Hie marketing d e c i s i o n s w i l l n o t be discussed f u r t h e r in t h i s

paper. With the exception of Chamberlin (3, chapter v i i ) , t h e r e
has been l i t t l e e f f o r t to i n t e g r a t e them with the body of econom-
i c d o c t r i n e , presumably because the c e n t r a l i s s u e s of economics
concern t h e response to the w a n t - p a t t e r n of s o c i e t y r a t h e r than
manipulation of i t .
Technical d e c i s i o n s are u s u a l l y banned from the economic f i e l d

of d i s c o u r s e and r e l e g a t e d to t h a t of engineering by the assump-
t i o n t h a t t h e r e i s some most e f f i c i e n t way t o combine given
quantities o f raw materials to produce a desired b i l l of products,

and that t h i s i s the technical procedure which will be adopted.
Hie solution to the technical problems of the firm i s regarded as
summarized by a "production function." Samuelson presents a
typical formulation:
We assume as given by technical considerations the maximum

amount of output, x, which can be produced from any given set
of inputs (Vy v n ) , Hiis catalogue of p o s s i b i l i t i e s i s
the production function and may be written
* = f(vv
In general, there will be a maximum output for each set of in-

puts, and so t h i s function i s single-valued, and will be assumed
i n i t i a l l y to have continuous p a r t i a l derivatives of desired
order. (32, pp. 57, 58).
The formal essence of the marginal analysis of the firm can now
be stated very b r i e f l y and in somewhat more general terms than
Samuelson's. We begin with the firm, which i s assumed to be a
r a t i o n a l , independent, decision-making unit whose whole objective
i s to maximize p r o f i t s . I t s f i e l d of decision making and the
measure of merit of any decisions are defined in terms of produc-
tion and price functions. Assume that the firm produces m salable
commodities by consuming n inputs. Let x. denote the quantity
produced o f the ith salable comnodity and Vj the quantity con-
sumed o f the j t h input. We assume also that these quantities
are connected by the production or transformation function
0.1 f(xv ..., xm; v v . . . . vn) = 0
A l i t t l e care i s needed in the definition o f t h i s function. For

any given set of inputs, Vj, . . . , v n , there will generally be
several technically possible sets of outputs, i j , . . . . x . Assign
arbitrary values to m-1 of these outputs and determine the larg-
e s t value of the remaining output which i s consistent with equa-
tion 0 . 1 . In t h i s manner we are assured that the transformation
function will be single-valued, that i s , i f a l l the inputs and
a l l but one of the outputs are assigned, then the remaining out-
put i s fully determined. I t i s assumed also that the transforma-
tion function i s defined over the domain of non-negative inputs
and outputs and that within the domain of definition i t has con-
tinuous partial derivatives o f f i r s t and second order.
TWO A P P R O A C H E S TO THE THEORY OF THE FIRM 7
We assume t h a t a p r i c e f u n c t i o n i s a s s o c i a t e d with each s a l -

a b l e commodity and t h a t i t s value i s dependent on the q u a n t i t i e s
produced of a l l s a l a b l e conmodities. We denote these f u n c t i o n s
by:
0 2 P P
i- i<* 1 *,)>
Then we d e f i n e g r o s s revenue to be:
m
0.3 - 2 P
i*i-
UÎ
I t i s assumed t h a t a p r i c e f u n c t i o n i s a s s o c i a t e d a l s o with
each i n p u t , and t h a t t h e s e f u n c t i o n s may be w r i t t e n
0.4 <ij « 1j .... vn).
Hie c o s t of production i s then d e f i n e d to be:
n
0.5 c = 2 a .v ..
• 4 } 1
J=t
And f i n a l l y , p r o f i t i s d e f i n e d to be:
0.6 7i = r - c
By v i r t u e of t h e e q u a t i o n s 0 . 1 to 0 . 6 , the p r o f i t and a l l s u b s i d -
i a r y v a r i a b l e s are seen t o be f u n c t i o n s of the i n p u t s , " • and
the o u t p u t s , The f i e l d of d e c i s i o n i s then t h a t region i n
which a l l o f the Vj and x^ a r e p o s i t i v e and the o b j e c t i v e of t h e
f i r m i s t o f i n d t h a t s e t of Vj and x^ f o r which n i s as g r e a t
a s p o s s i b l e . That i s , i t i s r e q u i r e d t o f i n d a s t a t i o n a r y value
of e q u a t i o n 0 . 6 s u b j e c t t o the r e s t r i c t i o n of equation 0 . 1 and t o
c o n d i t i o n s on the second d e r i v a t i v e s which w i l l guarantee t h a t t h e
s t a t i o n a r y value i s a maximum r a t h e r than a minimum o r a p o i n t of
i n f l e c t i o n . The problem i s solved by a s t r a i g h t f o r w a r d a p p l i c a -
t i o n of Langrange's method. Form t h e f u n c t i o n :
0.7 a= r - c - kf(xl, xm; , vH)
and c a l c u l a t e the p a r t i a l d e r i v a t i v e s with r e s p e c t t o each of t h e

i n p u t s and o u t p u t s . L e t :
dr * dp
denote the marginal revenue obtained by producing an additional

unit of the ith output, all other outputs and inputs remaining
the same, and
dr n dqR
<*Vj }
(3 = 1 P
¿»J
denote the marginal cost of procuring one more unit of the Jth
input, all other variables remaining the same. Then, taking the
partial derivatives of equation 0.7 and equating them to zero,
we obtain:
df
M(i) - k — = 0, i = I, m;
ax ^
df
- MC(j) - k^- = 0, j = 1, n.
av.
The simultaneous solution of these two sets of equations together
with equation 0.1 determines the optimum values of all the in-
puts and all the outputs.
The leading results of this analysis are obtained immediately

by finding ratios of pairs of these equations. In this manner we
find:
MRf^) dxt
°'8 M(i0) dx.

which indicates that when the optimum quantities of conmodities ij
and ig a r e being produced, the ratio of their marginal revenues
must be equal to the rate of physical substitutability in produc-
tion of the two conmodities.
Similarly, we find for the inputs:

MC(j) dv
0.9 L =
MC(J2) DVH
which indicates that when optimum quantities of inputs j and j^

are being consumed, the ratio of their marginal costs must be
equal to their physical substitutability in the production func-
tion. And, finally, we obtain:
TWO A P P R O A C H E S TO THE THEORY OF THE FIRM
MC(j) dx.
0.10
MR( i ) dv.
which shows that at the optimum the ratio of the marginal cost of
the Jth input to the marginal revenue of the ith output is
equal to the marginal physical productivity of the jth input for
producing the ith output. From this last ratio it follows that:
dx.
0.11
m(i) MC(j)
which signifies that the number of units of the ith output which
can be obtained by increasing the cost by $1 is the same, no mat-
ter which input that $1 is expended on. Further, equation 0.11
shows that II spent on any input will produce a sufficient in-
crease in physical output so that revenue is increased by $1.
We have now obtained the "first-order" conditions for an op-

timum production plan. But an analysis based on first deriva-
tives alone cannot guarantee the attainment of a maximum; a lo-
cal minimum or a stationary value will also satisfy these condi-
tions on the first derivatives. For a local maximum to exist,
the well-known conditions on the second-order derivatives of
equation 0.7 must be satisfied (see, for example, 16, pp. 319-
320). Analysis of these conditions would lead to a more ex-
tended discussion than the purposes of this brief survey of the
formal marginalist theory warrant. Such analyses, for cases
somewhat less general than the one discussed above, have been
carried out by Samuelson (32, pp. 61-63) and Hicks (16, chapter
vi and pp. 319-320). The most compact statement of the com-
plete conditions for an optimal production schedule under pure
competition has been given by Hicks:
If the prices of all products and all factors are given to

the enterprise, the quantities of factors it will employ, and
products it will produce, will be given by the condition that
the surplus is a maximum. This implies that it cannot be in-
creased by any type of variation. We shall thus have the
following conditions of equilibrium . . .
(1) Corresponding to the condition price = marginal cost, we

have three sorts of conditions:
10 LINEAR PROGRAMMING AND T H E O R Y OF THE FIRM
(a) Hie price-ratio between any two products must equal the
marginal rate of substitution between the two products (this is
now a technical rate of substitution).
(b) Hie price-ratio between any two factors must equal their
marginal rate of substitution.
(c) The price-ratio between any factor and any product must
equal the marginal rate of transformation between the factor
and the product (that is to say, the marginal product of the
factor in terms of this particular product).
(2) Next there are the stability conditions. For the trans-
formation of a factor into a product we shall have the condi-
tion of diminishing marginal rate of transformation or dimin-
ishing marginal product. For the substitution of one product
for another we shall have a condition of "increasing marginal
rate of substitution," that is to say, increasing marginal cost
in terms of the other product (marginal opportunity cost). For
the substitution of one factor for smother, "diminishing mar-
ginal rate of substitution. " (16, pp 86-87).
This quotation summarizes the results of the marginal analy-

sis of the firm's production problem. The entire analysis de-
pends on being able to differentiate the production, revenue,
and cost functions with respect to each input and output inde-
pendently, a mathematical procedure which has operational sig-
nificance only when corresponding variations of values are pos-
sible in the phenomenal world. Such cases do exist in economics,
characterized by production situations in which the field of
technical choices includes infinitesimal variations of indivi-
dual inputs and outputs. The classic Ricardian case, agricul-
ture, is an example of such a technological situation. There
it is technically feasible to vary the quantities of seed, la-
bor, fertilizer, and the like used per acre over a wide range
without altering the method of production in other respects.
But in non-agricultural industries, the case is often other-

wise. Machinery, and especially the more advanced types, is
likely to be inflexible with regard to the factors which must
be combined with it and with regard to the rate and character
of its output. Thus, when it has been determined to use a
certain number of units of a specific machine, several of the
other variables in the production function have been determined
at the same time. It will not then be possible to move freely

from point to point on the production surface except in an indi-
rect manner. This can be seen as follows. Although any particu-
lar industrial process is quite inflexible with regard to the
character and quantity of the factors it consumes, there are
generally a number of alternative processes, differing in this
respect, for attaining the same general result. By combining a
number of different processes, a wide variety of factor-input and
product-output ratios for the firm as a whole can be attained.
For example, in typesetting a linotype machine requires less
floorspace per unit of output but more power than a monotype
machine. By having some machines of each kind, the space and
power facilities of a plant can be utilized fully.
The type of decision which faces a firm using industrial proc-

esses is therefore essentially different from the decisions
contemplated by the marginal analysis. The firm may decide the
extent to which to use each of the types of equipment it owns at
any time. In that case any variation in the use of equipment im-
plies simultaneous variation in the use of factors complementary
to that equipment. Hie firm may choose among a number (generally
finite) of ways of applying its equipment. Or it may select
among a number of types of equipment offered for its purchase.
All of these decisions differ in two respects from the kind of
decision treated in the marginal analysis. First, they affect
the quantities of a group of distinct inputs and outputs simul-
taneously. Second, the range of choice does not lie along a
continuous scale, but involves selection among discrete alterna-
tives. The effects of such decisions are therefore not adequate-
ly expressed by the theoretical operation of partial differentia-
tion with respect to the quantities of separate inputs and out-
puts.
For the study of decisions in such an industrial milieu, em

analytic apparatus is required whose structure parallels the
structure of the decisions to be analyzed. The linear program-
ming method was devised for this specific purpose.
The last few paragraphs have made use of a number of terms —

linear programming, production process, factor, produce — with-
out adequate definition. This was necessary in order to give
some idea of the point of view taken by linear programming. Now
we must proceed to a careful formulation of these concepts and
to a statement of the linear programning approach to economic

problems.
3. Basic Concepts of Linear Programming
Although this essay will be concerned chiefly with the application

of linear programning to the theory of an individual firm, the
technique itself has a much wider scope. Linear programning is
basically the mathematical study of a certain kind of optimization,
which we are about to describe, and applies whenever the facts of
an economic situation fulfill, to a sufficiently good approximation,
the mathematical postulates of the method. As a mathematical
matter, linear programming has been defined to be the study of the
maximization or minimization in the large of a mathematical func-
tion subject to linear inequalities. It differs, therefore, from
the type of optimization treated in the calculus in three respects:
first, it deals with optimization in the large, rather than in the
small; second, it deals with restrictive inequalities, rather them
with restrictive equalities; third, it deals with linear restric-
tions, rather than with restraints of more general form. Two of
these differences are in the direction of making linear program-
ming more general and more powerful than ordinary maximization,
but the third is a restriction on its applicability, at least in
the current state of its mathematical development.
Linear programning was developed in response to a specific

economic problem, and it is not surprising therefore that there
exists a considerable class of economic problems which fulfill
its postulates. The particular problem which gave rise to linear
programning may be expressed as follows. Consider a firm which
has access to certain factors of production whose supply, for one
reason or another, cannot be increased in the time period in
view. These resources delimit the opportunities open to the
firm. They may be utilized in various ways, or not at all, and
depending on what is done with them the revenues, expenses, and
profits of the firm will vary. The problem facing the manage-
ment is to find the productive program which will make the prof-
its of the firm as great as possible, subject to the limitation
that this program must not require more than the total available
supply of any resource. We must now consider how such a prob-
lem can be formulated so as to bring it within the scope of the
TWO A P P R O A C H E S TO T H E THEORY O F THE FIRM 13
mathematical theory of linear programming.
To do this we require three basic concepts: resources, prod-

ucts, and production processes. These three concepts cannot be
defined without some circularity since they are defined in terms
of each other, but this need not lead to confusion since the no-
tions of resources and products are the same as those made famil-
iar by the marginal analysis, and the concept of production proc-
esses, though not the same as that of the production function,
is closely related to it.
A firm, even a retail store or a bank, is conceived of in

economics as "an institution which buys things, transforms them
in some way, and then sells them with the purpose of making a
profit " (1, pp. 377). The things which a firm buys may, of
course, be physical objects or they may be intangibles such as
energy in any form, space, the services of a human being or ani-
mal, or the right to use some physical object for some period of
time. We may think of all the physical and intangible things
used by the firm as being grouped into classes in such a way that
it is a matter of indifference to this firm or any firm which
member of a class it obtains for use in its productive work.
Such a class we shall call a resource, a factor, or an input.
J. Robinson has expressed this same concept in somewhat more
technical language, saying,". . . the various elements required for
the production of any commodity should be divided into groups,
each group being a factor of production, in such a way that the
elasticity of substitution between one factor and another is
less than infinite" (31, pp. 330). Since each resource is a
class of homogeneous elements, a measure of quantity can be
found. Physical units — acres, kilowatts, tons, man-hours,
dozen, and so forth — serve to measure the amounts of each re-
source consumed by a process of production.
The definition of a product or output is exactly similar.

All the results of productive effort, whether physical or in-
tangible, may be grouped into classes in such a way that any
firm or individual desiring a member of a class would not care
which member of that class he received. Such a class will be
referred to as a product or a type of output and, like resources,
to each product there corresponds an appropriate physical meas-
ure of quantity.
These two definitions are familiar. The definition of a pro-

ductive process is somewhat novel. Essentially, a productive proc-
ess is a physical event or series of events in which men partici-
pate purposefully in order to transform some resources into some
products. Millions of such events take place daily, of course.
Some are quite similar in the sense that they consume the same or
similar resources and turn out the same or similar products, and
some differ radically in their nature and purpose. Thus in de-
fining a process a problem of classification arises. We shall say
that two productive events are instances of the same process if
they consume the same resources and in the same proportions, and
if they produce the same outputs, and in the same proportions.
Otherwise they are instances of different processes.
In order to avoid the chance of ambiguity inherent in any ver-

bal definition which deals with quantitative matters we shall ex-
press our formal definition of a process algebraically, borrowing,
for this purpose, chemical notation. Suppose that a certain pro-
ductive event, which we shall denote by E^, consumes m resources
in various quantities and turns out n products in various quanti-
ties. We may express this as follows. Let the first factor be
F^ and the quantity consumed be a ^ , let the second factor be F 2
and the quantity consumed be and so on. And let the first
product be C^ and the quantity produced be b t h e second product
be C 2 and the quantity produced bi2> etc.(Of course, the factors
and products can be listed in any convenient order, alphabetical
for example.) Then what has occurred is a transformation which
may be written:
E : a
i ilFl+ai2F2 +
••• + a
l/.
> b ilCl+ b
i2C2 + ••• + b
inCn
Suppose that there is another event, denoted by E-, which con-

sumes the same m resources and yields the same n products. This
event may be described by:
V a ;lFl + a
j2F2 +
••• + a
j *Fm
> b jlCl + b
j2C2 + b
jnCn
TWO APPROACHES TO THE THEORY OF THE FIRM
Now if the inputs and outputs of these two processes are propor-
tional throughout, that is if
a
tl/a;l = a
i 21aj 2 = ai*/aj* = bi\/hj\ = ••• = biJhjn'
we shall say that the two events are instances of the same produc-
tive processes. Otherwise we shall regard them as instances of
different productive processes, even though they make use of
similar techniques and differ only in the ratios of the inputs
and outputs. It is seen that, by definition, a process in this
sense permits of only one type of variation, that of over-all
scale.
A metric is therefore needed for describing the scale or in-

tensity with which a process is carried on. All that is needed
to provide such a scale is to select any instance of that proc-
ess and define it as the unit level. Any other instance of the
process will consume factors and yield products in some ratio to
the unit level, and that unit may be used to measure the level
of the process. For example, if E^ and E• discussed above are
instances of the same process, E• may be selected as the unit
level and then E^ will be at the level given by a n / a j \ or any
of the other ratios. In such cases we shall make use of the no-
tation:
Ei = f ' i i / v v
It is seen that the "process" of linear programming is a more

specifically defined concept than the production function of
the marginal analysis. Indeed, a production function is a fam-
ily of processes which use the same factors and turn out the
same products. If we compare any two points on a production
surface, if the internal ratios of the inputs and outputs at
the two points are the same they will represent different lev-
els of the same process, otherwise they will represent differ-
ent processes. The production function thus is a tool for ex-
hibiting and comparing-different but related processes. What
it fails to present adequately is the consequence of using
several processes in parallel, and such combinations of proc-
esses are characteristic of modern industry.
The reason for using combinations of processes is evident.

As the output of any product or combination of products is
increased the supply of the factors needed for the most efficient
productive process will become exhausted. Then output can be ex-
panded only by resorting to productive processes which make use of
inferior resources or to processes which use the best resources in
non-optimal ratios. As production increases, therefore, the com-
mon phenomenon of increasing costs is experienced because of re-
course to more expensive processes. The average cost curve is a
genuine average of the costs of all the processes which must be
used to obtain a given output. This averaging is implicit in the
conventional production function and cost curve, but quite explic-
it in the linear programming analysis. An example of this type
of averaging would, perhaps, not be out of place.
Consider a firm which manufactures a single product and whose

initial equipment consists in a plant with a capacity of 100 units
of output per hour, stand-by equipment with a capacity of 25 units
per hour, and a trained staff adequate to operate the main plant.
Let us suppose that direct material cost is $0.50 per unit for
production in the main plant and $0.55 per unit for production in
the stand-by plant and that direct labor cost is $0.60 per unit in
the main plant using trained personnel. If stand-by equipment is
to be used, the inferiority of both the equipment and the person-
nel will combine to raise direct labor cost to, say, $0.70 per
unit produced on stand-by equipment even though hourly wage rates
remain the same. Both the main plant and the stand-by equipment
can be operated up to fifty hours a month at overtime wage rates,
which are 150 per cent of regular wage rates. We shall neglect
the firm's fixed costs since these will be incurred in any case
and will not influence production decisions. The word "costs" in
the next few paragraphs will therefore mean variable costs.
Let us now trace this firm's average cost curve. Assuming a

normal work-month of 176 hours, the firm can produce up to 17,600
units at a constant average (and marginal) cost of $1.10 per unit.
If production is to go beyond 17,600 units, stand-by facilities can
be used at a unit cost of $1.25 until an output of 22,000 units
has been reached. Production can be pushed up to 27,000 units per
month by using the normal equipment and staff on overtime, at a
unit cost of $1.40 for the last 5,000 units. And finally, the
stand-by plant can be used on overtime to produce 1,250 additional
units at a cost of $1.60 each. There are other possibilities too,
for example multiple shift operation, but these will suffice to
bring out the major characteristics of the situation.
The average cost curve generated by these conditions is as fol-

lows. For the first 17,600 units the average unit cost is constant
at $1.10. Thereafter, until 22,000 units are reached, the average
cost is given by
Average cost = 1.25 ~ 2,640/* where * = output in units.

For output between 22,000 and 27,000 units we have:
Average cost = 1.40 - 5,940 lx.
And finally, for output between 27,000 and 28,250 units,
Average cost = 1.60 - 11,340/ x.
This curve is shown in figure 1. In broad outline it follows the

usual concept of a cost curve rising with increasing steepness,
but examined in detail it displays discontinuities in its deriva-
tives whenever new production conditions have to be introduced.
Average
Cost
Output (units)
Fig. 1. Average cost curve for firm in pure competition.
In this example the only limitation on the operation of the

firm arose from its limited supply of installed equipment, and
the need for combining processes arose when the desired output
became out of balance with the capacity of this equipment. In
chapter ii we shall study cases in which the operations of a

firm are subject to several restrictions. In such cases the need
for combining several processes will be seen to arise from some-
what different considerations.
To some extent the apparent divergence between linear program-

ming and more familiar modes of analysis arises from differences
in the manner of expressing the same phenomenon. Consider, for
example, telephone calls, which may be switched either by human
switchboard operators or by automatic (dial) selectors. If a
telephone central changes over from the human to the automatic
system, the marginal analysis would describe the change as an in-
crease in the ratio of capital equipment to human inputs, while
linear programming would describe the same event as a decrease in
the level of one process, human switching, compensated by an in-
crease in the level of another process, automatic switching. In
analyzing switchboard operations, the marginal technique would be
concerned with finding the optimum ratio of capital equipment to
human operators without explicit consideration of the technical
methods for achieving this optimum. Linear programing, by con-
trast, would search explicitly for the optimum level of each meth-
od of operation without explicit consideration of the ratios of
different inputs on a system-wide basis. Which approach is more
relevant, of course, depends on the problem in hand.
We may now state the basic assumptions of linear progranming.

They are:
1. The productive opportunities of an economy or economic

unit are defined by the resources and the productive proc-
esses available to it. The quantities of at least some
of the resources are finite and so is the number of pro-
ductive processes available.
2. Any productive process may be used at any positive level

consistent with the supply of resources available. Hie
consumption of resources and the output of products is
proportional to the level at which the process is used.
3. Several productive processes may be used simultaneously,

if the supply of resources is adequate. If this is done,
the consumption of each resource is the sum of the con-
sumptions of the individual processes used, and the out-
put of products is the sum of the outputs of the individ-
ual processes..
TWO A P P R O A C H E S TO THE THEORY OF THE FIRM 19
Within this framework, the productive problem becomes the prob-

lem of choosing which productive processes to use and the level at
which to use each of them. It will be useful to formulate this
problem algebraically.
We shall make use of the concept of the production program, de-

noted by T, which is simply the totality of all the productive proc-
esses used by the firm. A productive process, in turn, is com-
pletely specified by giving the quantities of each of the inputs
which it consumes and each of the outputs which it produces when
carried on at unit level. Thus the process denoted above by Ej
can be written more briefly as
E. = (ajX a.2 ... ajm b^ bj2 ... b.J,
it being easily understood which factor or product each of the co-

efficients refers to. Expressions of this type will occur fre-
quently in the treatment and, unless otherwise noted, will be re-
garded as column vectors. A production program, T, made up of
the processes P^, P 2 , ..., is simply the sum of the vectors of
the several processes, each being taken at the level at which it
occurs in the program. Thus if P^ is used at level P 2 at
level *2» etc., then
T= *1P1 + x2P2 + ... + xkPk.
The program is completely specified by the vector, X, of process

intensities, that is, by
X= (*i*2 ••• *k>-
The inputs and outputs of the production program T can now be ex-
pressed in terms of the corresponding process intensity vector, X.
Let
Pl = ( a a a i 2 ... au ba bi2 ... b.J, (i = 1, 2 k)
and let z^ denote the consumption of the first factor, z 2 the

consumption of the second factor, and so on. Then, clearly
a
Z1 = n x i + a 2 1 * 2 + ... + a k l x k ,
h = a12*l + a
22*2 + ••• + a
k2xk' e t c
•
20 LINEAR PROGRAMMING AND THEORY O F THE FIRM
If we write, for compactness:
~ <ail ai2 ( a colu™ vector)
' = A2 ... Ak), a matrix of m rows and

k columns,
Z
= <Z1 z2 ••• Z
J
then
Z = AX
expresses the inputs required by the production program.
Now if there are Sj units of the first resource available, «2

units of the second resource, and so forth, and if
S- (s1 s2 ... sj
then the resource limitation can be expressed by the requirement

that all production programs must satisfy the inequality:
AX< S
The output side is treated similarly. Let y^ be the output

of the first product, y^ the output of the second product, and
so on, and define:
r = (h ••• yJ
B
i = (bi 1 bi2 •••
B- (B, B2 ... Bk).
Then, just as for the inputs,
Y = BX
Now the valuation placed by a society or other unit of deci-

sion on a production program is a function of the inputs of re-
sources, the outputs of products, and perhaps the process in-
tensities themselves. We have just seen that the inputs and out-
puts may be expressed in terms of the process intensities, so the
measure of desirability of a production program is some function
of the process intensity vector, say f(X). Then the basic prob-
lem of linear programning is simply to find the intensity vector
X to which corresponds the largest attainable measure of desira-

bility, f(X) subject to the limitations
X> 0 (No process can be used at negative level.)
< S (No more resources can be used than are

available.)
It should be noted that this formulation will frequently not

serve to define a unique optimum program because there may be
several programs whose measures of desirability, f(X), are equal
or, as is frequent in analysis of social optima, non-comparable.
Non-comparability has been studied intensively by Koopmans (20),
but will not concern us in applying linear programming to the
theory of the firm since we can adopt a one-dimensional measure
of desirability, namely profitability.
Hie concepts which have been advanced thus far are adequate as
theoretical tools, but their applicability to the phenomenal
world requires slight amplification.
The definitions of resource and product required absolute homo-

geneity within each class. If an attempt were made to apply these
concepts strictly to any practical firm or problem, the analysis
would have to be carried out in terms of a prohibitively large
number of resources, processes, and products. But, of course, a
theory can be applied usefully to a practical context which it
describes only approximately. Thus in a practical context, theo-
retically heterogeneous units may be lumped into a practically
homogeneous class and treated as if they were to all intents and
purposes homogeneous. Indeed, one of the early great achieve-
ments in linear programming, that of Leontief (23), consisted in
describing the structure of American industry in terms of only
some forty processes and products each of which, for the pur-
poses in hand, could be considered homogeneous. As a practical
matter, then homogeneity is relative to the problem under con-
sideration.
There is still one ambiguity in the concept of a process

which remains to be cleared up. Nearly all products pass through
a number of successive stages in their process of manufacture.
For example, the manufacture of a book involves first typesetting
and then printing and finally binding, and each of these stages
can be broken down still further if desired. What then is a proc-
ess? Is it book manufacture, or is it typesetting, or is it
carrying type from the machine to the galley-form? The answer to
this depends on the nature of the problem in hand. Clearly if it
is desirable to consider the relationships of sub-processes it
will be convenient to define them individually. On the other
hand if interest focuses on the larger processes and the relation-
ships of the component operations can be assumed to be established
it will, in general, be most practical to use the notion of
the process to denote the largest series of operations for which
the ratios of the first inputs to the last outputs are rigidly
determined.
C H A P T E R II
The Competitive Firm
Using Fixed Factors
1. Formulation of the Problem
We may think of an entrepreneur at the beginning of a production

planning period as having certain fixed factors of production at
his disposal and as having access to competitive markets in
which he can procure the variable factors needed to make use of
his fixed factors. His problem is essentially to devise a pro-
duction program which will utilize the fixed factors to best ad-
vantage, that is, secure the greatest possible profit from their
use. To a farmer, for example, the controlling fixed factor is
land of given characteristics and his production program consists
of decisions as to crops and methods and intensities of cultiva-
tion. A chemical firm, similarly, inherits a fixed plant of given
characteristics from previous production periods and often has a
considerable latitude in selecting the end products it is to pro-
duce and the raw materials and processes to be used. It would be
hard to imagine a firm which does not periodically face this
problem of finding the optimum use for its inherited equipment.
In order to characterize the situation more precisely, we

shall assume that the firm has n factors, which are not perfect
substitutes for each other, in fixed supply. We shall assume
also that there are k processes, each of which uses at least one
of these factors, available to the firm. Thus the problem is
that of deciding which of the k available processes are to be
used at all, and the level at which each is to be carried on.
Generally speaking, each of the k available processes will use
23
LINEAR PROGRAMMING AND T H E O R Y OF THE FIRM
some of the fixed factors, the quantity depending on the level at

which the process is carried on and on the nature of the process,
and will use also some variable factors which must be purchased
on the open market. A process will result in the production of
salable commodities, and we shall assume that these are to be sold
under competitive conditions. The excess of the revenue result-
ing from the sale of the commodities produced by a process over
the cost of the variable factors required will be referred to as
the net revenue of that process. A process may therefore be char-
acterized by the quantity of each of the fixed factors which is
required in order that that process be carried on at a level which
results in a net revenue of $1. Symbolically, we shall denote a
process by a column vector such as:
P
i = (ail a
i2 ••• a
i J
¿=1,2 k.
a
where {j is the consumption of the jth
fixed factor by one unit of the ith
process.
(Prime marks ( ' ) throughout this chapter will indicate trans-

posed vectors and matrices.) We shall denote by x^ the level at
which the ith process is used. In consequence of these defini-
tions, if process P^ is used at level x^ it will yield a net re-
venue of $x i and will consume *j a ji units of the first limited
factor, *.a.„ units of the second limited factor, and so on.
i i2
In general, a firm may use several processes at various levels.
It may use Process 1 at level Process 2 at level x^ and so
on. In this case, the aggregate net revenue will be the sum of
the net revenues of the individual processes, or:
r = x l + x 2 + ... + xk.
In this formula, it should be remarked, some of the x's may be

zero. Similarly, the aggregate consumption of each of the limit-
ed factors is the sum of the quantities consumed by each of the k
processes. This may be written:
Z x P + x P + x P
= l l 2 2 ••• + k k-
THE C O M P E T I T I V E FIRM U S I N G FIXED FACTORS 25
It will be most convenient to use this formula in matrix form.

We note that each of the P^ is a column vector of n elements, so
that
A - (Pl P2 ... Pk)
is a matrix of n rows and fe columns. We can denote the production

program by afe-elementcoluim vector,
X- (XIX2 ... xk)
where the ith element denotes the level at which the ith process
is operated. Given such a production program vector, X the total
consumption of the n limited factors, may be written
Z= AX
and the total resultant net revenue may be written
r = l'X
where 1' is a row vector consisting of k ones.
At this stage the maximizing problem faced by the firm can be

formulated as follows: Suppose that the firm has available S^
units of the first limited factor, S„ units of the second limited
factor, ..., Sm units of the nth and last limited factor. And
i
let
S = r5 x s 2 ...SJ.
Then the firm must attempt to maximize

r = l'X
subject to the restrictions

X> 0
AX < S
The problem is, however, not very convenient to solve in the

form just stated, and will now be reformulated by means of a de-
vice for which Dr. George B. Dantzig is responsible. This device
consists in the introduction of "disposal processes." It will be
assumed that if the production plan does not make use of the en-
tire available supply of one or more of the limited factors, the
excess will go costlessly to waste. We shall introduce n
26 LINEAR PROGRAMMING AND THEORY OF THE FI
"disposal processes," one for each limited factor, and shall de-
note them by Â+l' Pk+2' • • • > Pk+n where P k+j i s the process of
allowing one unit of the jth limited factor to go to waste. In
vector form, the disposal processes may be written:
V i - fi o o... o r
p t + 5 = ro i o... o r
P t + n = (o 0 0 . . . i r
Now we may think of the firm as having k+n processes — k
active and n disposal — available to it. Its production pro-
gram vector will therefore have k+n elements, that is:
X = (x x x 2 ... Xk¥n ).
Hie matrix of production possibilities will have to be expanded

to have k+n columns. It becomes:
* = (P1P2 •••Pk+n) = (AI>

where I is the identity matrix of n rows and
columns.
Hie formula for net revenue also has to be altered. We intro-

duce the coluim vector
V
- <Vl V2 V
k+J
where:
v j 1 if P^ is an active process
if P^ is a disposal process.
This vector, of course, represents the net revenue resulting

from the use of one unit of each of the k+n available processes
Then aggregate net revenue is:
r = V'X
Throughout the rest of the chapter we shall always include dis-
posal processes when we talk of production processes or produc-
tion programs. The maximizing problem now takes the following
ôrm: irtv •
r = V X is to be maximized
THE COMPETITIVE FIRM USING FIXED FACTORS 27
subject to restrictions:
X> 0
BX = S
The advantage of this over the previous formulation is that an

equality has replaced the inequality in the second restriction.
2. The Basic Theorem
CXir discussion of this maximizing problem will be based on the

theory of linear programming devised largely by Dantzig (6 and
8). We make three additional assumptions regarding the problem:
1. Every sub-set of n processes, P^,

forms a linearly independent set
of vectors.
2. Every sub-set of m-i vectors

(vi Pi a
li near ly independent set.
3. The vector S which specifies the available

quantities of the limited factors, is linear-
ly independent of every set of n-1 processes.
The meaning and consequences of these assumptions will be dis-

cussed more fully later on. For the present just one conment
need be made. If any process uses only one scarce factor its
vector will be linearly dependent on the vector for the dis-
posal process for that factor. This disposal process is then
otiose and should be omitted from the schedule of available proc-
esses.
As a consequence of assumption 1, every set of n process vec-

tors forms an n x n matrix of rank n. We shall also have
occasion to use the enlarged matrix
whose ith column is (v^ Pi ')'. This matrix has n+ 1 rows and k
columns. It is of rank n+1 by assumption 2.
We now note that there exists a solution to
BX = S
in which no more than n elements of X are positive, the rest be-

ing zero. For example, the vector
X = (0' S')'
where 0 denotes a row o£ k zeros
clearly satisfies the equation since
A solution in which no more than n elements of X enter with posi-

tive values will be referred to as basic solution. The n process
vectors which enter into a basic solution with positive multi-
pliers will be called the basis corresponding to that solution.
We have already produced one basic solution. There will, in
general, be many of them; others can be found readily by select-
ing any active process and any n-1 disposal processes.
By reason of assumption 3, all basic solutions involve pre-

cisely n elements of X at positive values, for otherwise S
would be linearly dependent cm the fewer-than-n processes whose
vectors had positive weights in the solution. The economic
meaning of the existence of basic solutions, which has just been
shown, is that no matter what bill of supplies of n scarce fac-
tors is available, a production schedule using just n processes
(including disposal processes) can be constructed which will
utilize them all.
We are now in a position to state the basic theorem of linear

programing: The solution which maximizes aggregate net revenue
is a basic solution.
We shall prove this by assuming that the theorem is not true

and thereby forcing a contradiction. Let the maximizing solu-
tion be X, so that:
r = V'X = maximum
BX = S
L e t X have t p o s i t i v e components where t > n. Without l o s s o f

g e n e r a l i t y we can assume t h a t t h e p r o c e s s e s have been numbered i n
such a way t h a t t h e f i r s t t e l e m e n t s o f X a r e t h e p o s i t i v e o n e s .
We now p a r t i t i o n t h e B and X m a t r i c e s a s f o l l o w s : Let
Bj be t h e f i r s t n columns o f B
#2 be t h e n e x t t-n columns o f B
Bj be t h e l a s t k+n-t columns o f B
Jf be t h e f i r s t n e l e m e n t s o f X
X^ be t h e n e x t t-n elements of X
Y }*» tlip l n s h hi-n-t plpmpnfs n f X
B1 + B2 X2 = S '
x v x 2 > 0
By assumption 1 , & i s a n o n - s i n g u l a r square matrix. We may

therefore write:
= B1-1 S - B^1 B2 X2.
For c o n v e n i e n c e , let
Q = Bj"1 B2 and Q 0 = ß f 1 S
Then
= <?0 *
Now it is necessary to bring the net revenue function into the

picture. We partition the unit net revenue vector, V, to corre-
spond to the partitioning of X and write:
r = V'X= ViX,
1^1 + + 2V'X
2*
we
Using the expression for X^ in terms of X^ have:
r= V{Q0 + (Vj - V{Q) X2.
Since > 0 w e c a n vary each component of X^ slightly both

upward and downward without forcing any element of or X to
vanish or become negative. Now we have assumed that r is as
great as possible, so that no such variation can increase it-.
This can happen only if:
V2' - V{Q= 0
or
V
2 = W
Now, obviously,
B2 = B.Q.
Thus we see that the (rh-l) x t matrix

•v{ ^
A *2
is of rank n. But this contradicts assumption 2. Therefore we

cannot have t > n, and the theorem is proved.
We have now shown that the optimum production schedule, under

the assumptions given, will involve exactly n production proc-
esses at positive levels. Some of these may be disposal proc-
esses, of course
3. Computational Procedure
It will be instructive to present a computational procedure for

finding the optimum production program. This procedure will be
iterative. It will consist in starting with any basic solution
and deriving from it another basic solution which is more profit-
able. The procedure is repeated until no further improvement is
possible.
It is easy to find a starting point. As was mentioned, a pro-

duction program made up of the n disposal processes will do. As
a practical matter, however, it will generally be better to start
with a program which consists of one active process plus n-1 dis-
posal processes.
Now it is necessary to show how, given any basic solution, a

better basic solution can be derived from it unless the solution
at hand is already optimal. Let X be a basic solution, that is,
let X satisfy:
EX = S,
X> 0.
Exactly n components of X are positive, the rest being zero.
Without loss of generality we can assume that the processes have
been numbered in such a way that the first n elements of X are
the positive ones. Then we can partition B after the nth column
and X after the nth element and write:
Bj Aj + B2 ^ S.
Since Bj is non-singular by assumption 1, we can solve this for

X v obtaining:
Let
Q = B f 1 B 2 , and QQ = B f 1 5.
We have:
x1 = <?o - Q*2-
Hie unit profit vector, V, can be partitioned correspondingly,

giving:
r=v;x1 + K2' X2
= V{ Bf 1 S + rv 2 ' - V{ Q) \
= V{ % + (Vi - vi Q) x2-
So far we have assumed X^ = 0. Since A^ > 0, each component of
Xg can be increased at least slightly without forcing any compo-
nent of X^ to become zero or negative.
Now if
V2' - V{ Q < 0
an increase in any component in X^ will decrease net revenue if

the inequality holds for that component or will leave net reve-
nue unchanged if the equality holds.'' At any rate, no change
in will increase revenue and the production schedule denoted
by X is optimal.
We shall refer to the inequality

K2 - V^Q < 0
as the "simplex criterion," and any set of n process vectors which

leads to matrices which satisfy the inequality will be said to
satisfy the simplex criterion. We have just seen that a basis
which satisfies the simplex criterion corresponds to an optimum
production plan.
Oh the other hand if the simplex criterion is not satisfied,

that is, if there is a positive element in - V^Q) then it
will be possible to increase r by giving a positive value to at
least one component of X^ Thus if assumptions 1 and 2 hold,
satisfaction of the simplex criterion is a necessary and suffi-
cient condition for a basic solution to be optimal.
Now let us consider the situation which arises when one or

more of the elements of (V^ - V^Q) are positive. To do this we
^ I t may be n o t e d t h a t by r e a s o n of a s s u m p t i o n 2 t h e e q u a l i t y n e v e r
a c t u a l l y occurs.
shall have to look more closely at the matrices which enter into
r. They are: y> = ^ ... „ J ,
V v
2 " ^Vl V 2 nt-h>'
Bl - 0», P2 ••• P»>>'
*2 = <Pr*I •••
1
Q= V h-
We shall number the columns of Q to correspond to the coluims
offij,so that we write:
Q' Q^ • • • <Lk >
where Q ^ i is the ri- element column vector which is a solution to

the equation
C P 1 P 2 ••• P n > < l » i - P » i
Thus Q„+i is the vector which specifies the combination of then

processes in the basis which consumes the same quantities of the
limited factors as We shall therefore refer toQ^âs the
equivalent combination to f ^ j •
The profit resulting from process P ^ , at unit level is, by

definition, V Hie profit resulting from the equivalent com-
bination is, clearly:
Now let us consider the vector (y£ - V^ Q).
It can be written:
(y2 - vi Q>- rvi v 2 ••• - vi i <Li ••• W
If each of these elements is negative, it signifies that each

process excluded from the basis is less profitable than the equiv-
alent combination which consumes the same quantities of the limit-
ed factors. Thus the simplex criterion asserts that a basis is
optimal if and only if no excluded process is more profitable
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cliffs of chalk and marl. Crabbed England, consuming beef and pudding,
and pouring down magnums of port, to cheat the elements. Go it, England,
you will beat Bonaparte yet. What have you to do with ideas! You have
Bishops, and Squires, and Manor-houses, and—rum.
London shakes with bells. Loud, bright bells clashing over roofs and
steeples, exploding in the sunlight with the brilliance of rockets. Every
clock-tower drips a tune. The people are merry-making, for this is the
King's Birthday and the mails parade this afternoon.
"Messrs. Vidler and Parrat request the pleasure of Mr. Chaplin's

company on Thursday the twenty-eighth of May, to a cold collation at three
o'clock and to see the Procession of the Mails."
What a magnificent spectacle! A coil of coaches progressing round and

round Lincoln's Inn Fields. Sun-mottled harness, gold and scarlet guards,
horns throwing off sprays of light and music. Liverpool, Manchester—
blacks and greys; Bristol, Devonport—satin bays; Holyhead—chestnuts;
Halifax—roans, blue-specked, rose-specked ... On their box-seat thrones sit
the mighty coachmen, twisting their horses this way and that with a turn of
the wrist. These are the spokes of a wheeling sun, these are the rays of
London's aureole. This is her star-fire, reduced by a prism to separate
sparks. Cheer, good people! Chuck up your hats, and buy violets to pin in
your coats. You shall see it all to-night, when the King's arms shine in
lamps from every house-front, and the mails, done parading, crack their
whips and depart. England forever! Hurrah!
England forever—going to the Prize Fight on Copthorne Common.

England forever, with a blue coat and scarlet lining hanging over the back
of the tilbury. England driving a gig and one horse; England set up with a
curricle and two. England in donkey-carts and coaches. England swearing,
pushing, drinking, happy, off to see the "Game Chicken" punch the
"Nonpareil's" face to a black-and-blue jelly. Good old England, drunk as a
lord, cursing the turn-pike men. Your hedges will be a nest of broken bottles
before night, and clouds of dust will quench the perfume of your flowers. I
bet you three bulls to a tanner you can't smell a rose for a week.
They've got the soldiers out farther along. "Damn the soldiers! Drive
through them, Watson." A fine, manly business; are we slaves? "Britons
never—never—" Waves lap the shores of England, waves like watchdogs
growling; and long hedges bind her like a bundle. Sit safe, England, trussed
and knotted; while your strings hold, all will be well.
But in the distance there is a puff of steam. Just a puff, but it will do.
Post-boys, coachmen, guards, chaises, melt like meadow rime before the
sun.
You spun your webs over England, hedge to hedge. You kept England
bound together by your spinning wheels. But it is gone. They have driven a
wedge of iron into your heart. They have dried up the sea, and made
pathways in the swimming air. They have tapped the barrels in your cellars
and your throats are parched and bleeding. But still the hedges blow for the
Spring, and dusty soldiers smell your roses as they tramp to Aldershot or
Dorchester.
England forever! Star-pointed and shining. Flinging her hedges out and
asunder to embrace the world.
THE BRONZE HORSES
ELEMENTS
Earth, Air, Water, and Fire! Earth beneath, Air encompassing, Water
within its boundaries. But Fire is nothing, comes from nothing, goes
nowhither. Fire leaps forth and dies, yet is everything sprung out of Fire.
The flame grows and drops away, and where it stood is vapour, and
where was the vapour is swift revolution, and where was the revolution is
spinning resistance, and where the resistance endured is crystallization.
Fire melts, and the absence of Fire cools and freezes. So are metals fused in
twisted flames and take on a form other than that they have known, and this
new form shall be to them rebirth and making. For in it they will stand upon
the Earth, and in it they will defy the Air, and in it they will suffer the Water.
But Fire, coming again, the substance changes and is transformed.

Therefore are things known only between burning and burning. The quickly
consumed more swiftly vanish, yet all must feel the heat of the flame which
waits in obscurity, knowing its own time and what work it has to do.
ROME
The blue sky of Italy; the blue sky of Rome. Sunlight pouring white and
clear from the wide-stretched sky. Sunlight sliding softly over white marble,
lying in jasmine circles before cool porticoes, striking sharply upon roofs
and domes, recoiling before straight façades of grey granite, foiled and
beaten by the deep halls of temples.
Sunlight on tiles and tufa, sunlight on basalt and porphyry. The sky
stripes Rome with sun and shadow; strips of yellow, strips of blue, pepper-
dots of purple and orange. It whip-lashes the four great horses of gilded
bronze, harnessed to the bronze quadriga on the Arch of Nero, and they trot
slowly forward without moving. The horses tread the marbles of Rome
beneath their feet. Their golden flanks quiver in the sunlight. One foot paws
the air. A step, and they will lance into the air, Pegasus-like, stepping the
wind. But they do not take the step. They wait—poised, treading Rome as
they trod Alexandria, as they trod the narrow Island of Cos. The spokes of
the quadriga wheels flash, but they do not turn. They burn like day-stars
above the Arch of Nero. The horses poise over Rome, a constellation of
morning, triumphant above Emperors, proud, indifferent, enduring,
relentlessly spurning the hot dust of Rome. Hot dust clouds up about them,
but not one particle sticks to their gilded manes. Dust is nothing, a mere
smoke of disappearing hours. Slowly they trot forward without moving, and
time passes and passes them, brushing along their sides like wind.
People go and come in the streets of Rome, shuffling over the basalt
paving-stones in their high latcheted sandals. White and purple, like the
white sun and the purple shadows, the senators pass, followed by a crowd
of slaves. Waves of brown-coated populace efface themselves before a
litter, carried by eight Cappadocians in light-red tunics; as it moves along,
there is the flicker of a violet stola and the blowing edge of a palla of sky-
white blue. A lady, going to the bath to lie for an hour in the crimson and
wine-red reflections of a marble chamber, to glide over a floor of green and
white stones into a Carraran basin, where the green and blue water will
cover her rose and blue-veined flesh with a slipping veil. Aqua Claudia,
Aqua Virgo, Aqua Marcia, drawn from the hills to lie against a woman's
body. Her breasts round hollows for themselves in the sky-green water, her
fingers sift the pale water and drop it from her as a lark drops notes
backwards into the sky. The lady lies against the lipping water, supine and
indolent, a pomegranate, a passion-flower, a silver-flamed lily, lapped,
slapped, lulled, by the ripples which stir under her faintly moving hands.
Later, beneath a painting of twelve dancing girls upon a gold ground, the
slaves will anoint her with cassia, or nakte, or spikenard, or balsam, and she
will go home in the swaying litter to eat the tongues of red flamingoes, and
drink honey-wine flavoured with far-smelling mint.
Legionaries ravish Egypt for her entertainment; they bring her roses
from Alexandria at a cost of thirty thousand pounds. Yet she would rather
be at Baiae, one is so restricted in one's pleasures in Rome! The games are
not until next week, and her favourite gladiator, Naxos, is in training just
now, therefore time drags. The lady lags over her quail and peacocks' eggs.
How dull it is. White, and blue, and stupid. Rome!
Smoke flutters and veers from the top of the Temple of Vesta. Altar
smoke winding up to the gilded horses as they tread above Rome. Below—
laughing, jangling, pushing and rushing. Two carts are jammed at a street
corner, and the oaths of the drivers mingle, and snap, and corrode, like hot
fused metal, one against another. They hiss and sputter, making a confused
chord through which the squeal of a derrick winding up a granite slab
pierces, shrill and nervous, a sharp boring sound, shoring through the wide,
white light of the Roman sky. People are selling things: matches, broken
glass, peas, sausages, cakes. A string of donkeys, with panniers loaded with
red asparagus and pale-green rue, minces past the derrick, the donkeys
squeeze, one by one, with little patting feet, between the derrick and the
choked crossing. "Hey! Gallus, have you heard that Cæsar has paid a
million sestertii for a Murrhine vase. It is green and white, flaked like a
Spring onion, and has the head of Minerva cut in it, sharp as a signet." "And
who has a better right indeed, now that Titus has conquered Judea. He will
be here next week, they say, and then we shall have a triumph worth
looking at." "Famous indeed! We need something. It's been abominably
monotonous lately. Why, there was not enough blood spilled in the games
last week to give one the least appetite. I'm damned stale, for one."
Still, over Rome, the white sun sails the blue, stretching sky, casting
orange and purple striæ down upon the marble city, cool and majestic,
between cool hills, white and omnipotent, dying of languor, amusing herself
for a moment with the little boats floating up the Tiber bringing the good
grain of Carthage, then relaxed and falling as water falls, dropping into the
bath. Weak as water; without contour as water; colourless as water; Rome
bathes, and relaxes, and melts. Fluid and fluctuating, a liquid city pouring
itself back into the streams of the earth. And above, on the Arch of Nero,
hard, metallic, firm, cold, and permanent, the bronze horses trot slowly, not
moving, and the moon casts the fine-edged shadow of them down upon the
paving-stones.
Hills of the city: Pincian, Esquiline, Cælian, Aventine, the crimson tip of
the sun burns against you, and you start into sudden clearness and glow red,
red-gold, saffron, gradually diminishing to an outline of blue. The sun
mounts over Rome, and the Arch of Augustus glitters like a cleft
pomegranate; the Temples of Julius Cæsar, Castor, and Saturn, turn
carbuncle, and rose, and diamond. Columns divide into double edges of
flash and shadow; domes glare, inverted beryls hanging over arrested
scintillations. The fountains flake and fringe with the scatter of the sun. The
mosaic floors of atriums are no longer stone, but variegated fire; higher, on
the walls, the pictures painted in the white earth of Melos, the red earth of
Sinope, the yellow ochre of Attica, erupt into flame. The legs of satyrs jerk
with desire, the dancers whirl in torch-bright involutions. Grapes split and
burst, spurting spots and sparks of sun.
It is morning in Rome, and the bronze horses on the Arch of Nero trot
quietly forward without moving, but no one can see them, they are only a
dazzle, a shock of stronger light against the white-blue sky.
Morning in Rome; and the whole city foams out to meet it, seething,
simmering, surging, seeping. All between the Janiculum and the Palatine is
undulating with people. Scarlet, violet, and purple togas pattern the mass of
black and brown. Murex-dyed silk dresses flow beside raw woollen fabrics.
The altars smoke incense, the bridges shake under the caking mass of sight-
seers. "Titus! Titus! Io triumphe!" Even now the troops are collected near
the Temple of Apollo, outside the gates, waiting for the signal to march. In
the parching Roman morning, the hot dust rises and clouds over the city—
an aureole of triumph. The horses on the Arch of Nero paw the golden dust,
but it passes, passes, brushing along their burnished sides like wind.
What is that sound? The marble city shivers to the treading of feet.
Cæsar's legions marching, foot—foot—hundreds, thousands of feet. They
beat the ground, rounding each step double. Coming—coming—cohort
after cohort, with brazen trumpets marking the time. One—two—one—two
—laurel-crowned each one of you, cactus-fibred, harsh as sand grinding the
rocks of a treeless land, rough and salt as a Dead Sea wind, only the fallen
are left behind. Blood-red plumes, jarring to the footfalls; they have passed
through the gate, they are in the walls of the mother city, of marble Rome.
Their tunics are purple embroidered with gold, their armour clanks as they
walk, the cold steel of their swords is chill in the sun, each is a hero, one by
one, endless companies, the soldiers come. Back to Rome with a victor's
spoils, with a victor's wreath on every head, and Judah broken is dead,
dead! "Io triumphe!" The shout knocks and breaks upon the spears of the
legionaries.
The God of the Jews is overborne, he has failed his people. See the stuffs
from the Syrian looms, and the vestments of many-colours, they were taken
from the great Temple at Jerusalem. And the watching crowds split their
voices acclaiming the divine triumph. Mars, and Juno, and Minerva, and the
rest, those gods are the best who bring victory! And the beasts they have
over there! Is that a crocodile? And that bird with a tail as long as a banner,
what do you call that? Look at the elephants, and the dromedaries! They are
harnessed in jewels. Oh! Oh! The beautiful sight! Here come the prisoners,
dirty creatures. "That's a good-looking girl there. I have rather a fancy for a
Jewess. I'll get her, by Bacchus, if I have to mortgage my farm. A man too,
of course, to keep the breed going; it will be a good investment, although, to
be sure, I want the girl myself. Castor and Pollux, did you see that picture!
Ten men disembowelled on the steps of the altar. That is better than a
gladiator show any day. I wish I had been there. Simon, oh, Simon! Spit at
him, Lucullus. Thumbs down for Simon! Fancy getting him alive, I wonder
he didn't kill himself first like Cleopatra. This is a glorious day, I haven't
had such fun in years."
The bronze horses tread quietly above the triumphing multitudes. They
too have been spoils of war, yet they stand here on the Arch of Nero
dominating Rome. Time passes—passes—but the horses, calm and
contained, move forward, dividing one minute from another and leaving
each behind.
You should be still now, Roman populace. These are the decorations of
the Penetralia, the holy Sanctuary which your soldiers have profaned. But
the people jeer and scoff, and comment on the queer articles carried on the
heads of the soldiers. Tragedy indeed! They see no tragedy, only an
immense spectacle, unique and satisfying. The crowd clears its throat and
spits and shouts "Io triumphe! Io triumphe!" against the cracking blare of
brazen trumpets.
Slowly they come, the symbols of a beaten religion: the Golden Table
for the Shew-Bread, the Silver Trumpets that sounded the Jubilee, the
Seven-Branched Candlestick, the very Tables of the Law which Moses
brought down from Mount Sinai. Can Jupiter conquer these? Slowly they
pass, glinting in the sunlight, staring in the light of day, mocked and
exhibited. Lord God of Hosts, fall upon these people, send your thunders
upon them, hurl the lightnings of your wrath against this multitude, raze
their marble city so that not one stone remain standing. But the sun shines
unclouded, and the holy vessels pass onward through the Campus Martius,
through the Circus Flaminius, up the Via Sacra to the Capitol, and then...
The bronze horses look into the brilliant sky, they trot slowly without
moving, they advance slowly, one foot raised. There is always another step
—one, and another. How many does not matter, so that each is taken.
The spolia opima have passed. The crowd holds its breath and quivers.
Everyone is tiptoed up to see above his neighbour; they sway and brace
themselves in their serried ranks. Away, over the heads, silver eagles glitter,
each one marking the passage of a legion. The "Victorious Legion" goes by,
the "Indomitable Legion," the "Spanish Legion," and those with a crested
lark on their helmets, and that other whose centurions are almost smothered
under the shining reflections of the medallions fastened to their armour.
Cohort after cohort, legion on the heels of legion, the glistening greaves rise
and flash and drop and pale, scaling from sparkle to dullness in a series of
rhythmic angles, constantly repeated. They swing to the tones of straight
brass trumpets, they jut out and fall at the call of spiral bugles. Above them,
the pointed shields move evenly, right to left—right to left. The horses
curvet and prance, and shiver back, checked, on their haunches; the javelins
of the horsemen are so many broad-ended sticks of flame.
Those are the eagles of the Imperial Guard, and behind are two golden
chariots. "Io triumphe!" The roar drowns the trumpets and bugles, the
clatter of the horses' hoofs is a mere rattle of sand ricocheting against the
voice of welcoming Rome. The Emperor Vespasian rides in one chariot, in
the other stands Titus. Titus, who has subdued Judea, who has humbled
Jehovah, and brought the sacred vessels of the Lord God of Hosts back with
him as a worthy offering to the people of Rome. Cheer, therefore, good
people, you have the Throne of Heaven to recline upon; you are possessed
of the awful majesty of the God of the Jews; beneath your feet are spread
the emblems of the Most High; and your hands are made free of the sacred
instruments of Salvation.
What god is that who falls before pikes and spears! Here is another god,
his face and hands stained with vermilion, after the manner of the
Capitoline Jupiter. His car is of ivory and gold, green plumes nod over the
heads of his horses, the military bracelets on his arms seem like circling
serpents of bitter flame. The milk-white horses draw him slowly to the
Capitol, step by step, along the Via Triumphalis, and step by step the old
golden horses on the Arch of Nero tread down the hours of the lapsing day.
That night, forty elephants bearing candelabra light up the ranges of

pillars supporting the triple portico of the Capitol. Forty illuminated
elephants—and the light of their candles is reflected in the polished sides of
the great horses, above, on the Arch of Nero, slowly trotting forward,
stationary yet moving, in the soft night which hangs over Rome.
PAVANNE TO A BRASS ORCHESTRA
Water falls from the sky, and green-fanged lightning mouths the heavens.
The Earth rolls upon itself, incessantly creating morning and evening. The
moon calls to the waters, swinging them forward and back, and the sun
draws closer and as rhythmically recedes, advancing in the pattern of an
ancient dance, making a figure of leaves and aridness. Harmony of chords
and pauses, fugue of returning balances, canon and canon repeating the
theme of Earth, Air, and Water.
A single cymbal-crash of Fire, and for an instant the concerted music

ceases. But it resumes—Earth, Air, and Water, and out of it rise the metals,
unconsumed. Brazen cymbals, trumpets of silver, bells of bronze. They mock
at fire. They burn upon themselves and retain their entities. Not yet the
flame which shall destroy them. They shall know all flames but one. They
shall be polished and corroded, yet shall they persist and play the music
which accompanies the strange ceremonious dance of the sun.
CONSTANTINOPLE
Empire of the East! Byzantium! Constantinople! The Golden City of the

World. A crystal fixed in aquamarines; a jewel-box set down in a seaside
garden. All the seas are as blue as Spring lupins, and there are so many
seas. Look where you please, forward, back, or down, there is water. The
deep blue water of crisp ripples, the long light shimmer of flat undulations,
the white glare, smoothing into purple, of a sun-struck ebb. The Bosphorus
winds North to the Black Sea. The Golden Horn curves into the Sweet
Waters. The edge of the city swerves away from the Sea of Marmora.
Aquamarines, did I say? Sapphires, beryls, lapis-lazuli, amethysts, and
felspar. Whatever stones there are, bluer than gentians, bluer than
cornflowers, bluer than asters, bluer than periwinkles. So blue that the city
must be golden to complement the water. A geld city, shimmering and
simmering, starting up like mica from the green of lemon trees, and olives,
and cypresses.
Gold! Gold! Walls and columns covered with gold. Domes of churches
resplendent with gold. Innumerable statues of "bronze fairer than pure
gold," and courts paved with golden tiles. Beyond the white and rose-
coloured walls of Saint Sophia, the city rounds for fourteen great miles;
fourteen miles of onychite, and porphyry, and marble; fourteen miles of
colonnades, and baths, and porticoes; fourteen miles of gay, garish, gaudy,
glaring gold. Why, even the Imperial triremes in the harbour have gold
embroidered gonfalons, and the dolphins, ruffling out of the water between
them, catch the colour and dive, each a sharp cutting disk-edge of yellow
flame.
It is the same up above, where statues spark like stars jutted from a mid-
day sky. There are golden Emperors at every crossing, and golden Virgins
crowding every church-front. And, in the centre of the great Hippodrome,
facing the triremes and the leaping dolphins, is a fine chariot of Corinthian
brass. Four horses harnessed to a gilded quadriga. The horses pace evenly
forward, in a moment they will be trampling upon space, facing out to sea
on the currents of the morning breeze. But their heads are arched and
checked, gracefully they pause, one leg uplifted, seized and baffled by the
arrested movement. They are the horses of Constantine, brought from
Rome, so people say, buzzing in the Augustaion. "Fine horses, hey?" "A
good breed, Persia from the look of them, though they're a bit thick in the
barrel for the horses they bring us from there." "They bring us their worst,
most likely." "Oh, I don't know, we buy pretty well. Why, only the other day
I gave a mint of money for a cargo of Egyptian maize." "Lucky dog, you'll
make on that, with all the harvest here ruined by the locusts."
It is a pretty little wind which plays along the sides of the gilded horses,
a coquettish little sea wind, blowing and listing and finally dropping away
altogether and going to sleep in a plane-tree behind the Hippodrome.
Constantinople is a yellow honey-comb, with fat bees buzzing in all its

many-sided cells. Bees come over the flower-blue seas; bees humming from
the Steppes of Tartary, from the long line of Nile-fed Egypt. Tush! What
would you! Where there is gold there are always men about it; to steal it, to
guard it, to sit and rot under its lotus-shining brilliance. The very army is
woven of threads drawn from the edges of the world. Byzantines are
merchantmen, they roll and flounder in the midst of gold coins, they tumble
and wallow in money-baths, they sit and chuckle under a continuous
money-spray. And ringed about them is the army, paid to shovel back the
scattering gold pieces: Dalmatians with swords and arrows; Macedonians
with silver belts and gilt shields; Scholarii, clad in rose-coloured tunics;
Varangians, shouldering double battle-axes. When they walk, the rattle of
them can be heard pattering back from every wall and doorway. It clacks
and cracks even in the Copper Market, above the clang of cooking pots and
the wrangling whine of Jewish traders. Constantinople chatters, buzzes,
screams, growls, howls, squeals, snorts, brays, croaks, screeches, crows,
neighs, gabbles, purrs, hisses, brawls, roars, shouts, mutters, calls, in every
sort of crochet and demi-semi-quaver, wavering up in a great contrapuntal
murmur—adagio, maestoso, capriccioso, scherzo, staccato, crescendo,
vivace, veloce, brio—brio—brio!! A racket of dissonance, a hubbub of
harmony. Chords? Discords? Answer: Byzantium!
People pluck the strings of rebecks and psalteries; they shock the cords
of lyres; they batter tin drums, and shatter the guts of kettle-drums when the
Emperor goes to Saint Sophia to worship at an altar of precious stones fused
into a bed of gold and silver, and, as he walks up the nave between the
columns of green granite, and the columns of porphyry, under the golden
lily on the Octagonal Tower, the bells pour their notes over the roofs,
spilling them in single jets down on each side of the wide roofs. Drip—drip
—drip—out of their hearts of beaten bronze, slipping and drowning in the
noise of the crowds clustered below.
On the top of the Hippodrome, the bronze horses trot toward the lupin-
coloured Sea of Marmora, slowly, without moving; and, behind them, the
spokes of the quadriga wheels remain separate and single, with the blue sky
showing between each one.
What a city is this, builded of gold and alabaster, with myrtle and roses
strewn over its floors, and doors of embossed silver opening upon golden
trees where jewelled birds sing clock-work notes, and fountains flow from
the beaks of silver eagles. All this splendour cooped within the fourteen
miles of a single city, forsooth! In Britain, they sit under oaken beams; in
France, they eat with hunting-knives; in Germany, men wear coats of their
wives' weaving. In Italy—but there is a Pope in Italy! The bronze horses
pause on the marble Hippodrome, and days blow over them, brushing their
sides like wind.
It is May eleventh in Constantinople, and the Spring-blue sea shivers
like a field of lupins run over by a breeze. Every tree and shrub spouted
over every garden-wall flouts a chromatic sequence of greens. A long string
of camels on the Bridge of Justinian moves, black and ostrich-like, against
the sheen of water. A swallow sheers past the bronze horses and drops
among the pillars on top of the curve of the Hippodrome; the great cistern
on the Spina reflects a speckless sky. It is race-day in Constantinople, and
the town is turned out upon the benches of the Hippodrome, waiting for the
procession to begin. "Hola! You fellows on the top tier, do you see
anything?" "Nothing yet, but I hear music." "Music! Oh, Lord! I should
think you did. Clear the flagged course there, the procession is coming."
"Down in front. Sit down, you." "Listen. Oh, dear, I'm so fidgety. If the
Green doesn't win, I'm out a fortune." "Keep still, will you, we can't hear
the music, you talk so loud." "Here they come! Green! Green! Green!
Drown those Blues over there. Oh, Green, I say!"
Away beyond, through the gates, flageolets are squealing, and trumpets
are splitting their brass throats and choking over the sound. Patter—patter—
patter—horses' hoofs on flagstones. They are coming under the paved arch.
There is the President of the Games in a tunic embroidered with golden
palm-branches; there is the Emperor in his pearl-lappeted cap, and his
vermilion buskins; and here are the racers—Green—Blue—driving their
chariots, easily standing in their high-wheeled chariots. The sun whitens the
knives in their girdles, the reins flash in the sun like ribbons of spun glass.
Three-year-olds in the Green chariot, so black they are blue. Four blue-
black horses, with the sheen of their flanks glistening like the grain of
polished wood. The little ears point forward, their teeth tease the bits. They
snort and jerk, and the chariot wheels quirk over an outstanding stone and
jolt down, flat and rumbling. The Blue chariot-driver handles a team of
greys, white as the storks who nest in the cemetery beyond the Moslem
quarter. He gathers up his reins, and the horses fall back against the pole,
clattering, then fling forward, meet the bit, rear up, and swing inward,
settling gradually into a nervous jigging as they follow round the course.
"Blue! Blue! Go for him, Blue!" from the North Corner. "Hurrah for the
Blue! Blue to Eternity!" Slowly the procession winds round the Spina, and
the crowd stands up on the seats and yells and cheers and waves
handkerchiefs, sixty thousand voices making such a noise that only the high
screaming of the flageolets can be heard above it. The horses toss and
twitch, the harness jingles, and the gilded eggs and dolphins on the Spina
coruscate in versicoloured stars.
Above the Emperor's balcony, the bronze horses move quietly forward,
and the sun outlines the great muscles of their lifted legs.
They have reached the Grand Stand again, and the chariots are shut and
barred in their stalls. The multitude, rustling as though they were paper
being folded, settles down into their seats. The President drops a napkin, the
bars are unlocked, and the chariots in a double rush take the straight at top
speed, Blue leading, Green saving up for the turn at the curve. Round the
three cones at the end, Blue on one wheel, Green undercutting him. Blue
turns wide to right himself, takes the outside course and flashes up the long
edge so that you cannot count two till he curves again. Down to the Green
Corner, Blue's off horses slipping just before the cones, one hits the pole,
loses balance and falls, drags a moment, catches his feet as the chariot
slows for the circle, gathers, plunges, and lunges up and on, while the
Greens on the benches groan and curse. But the black team is worse off, the
inside near colt has got his leg over a trace. Green checks his animals, the
horse kicks free, but Blue licks past him on the up way, and is ahead at the
North turn by a wheel length. Green goes round, flogging to make up time.
Two eggs and dolphins gone, three more to go. The pace has been slow so
far, now they must brace up. Bets run high, screamed out above the rumble
of the chariots. "Ten on the Green." "Odds fifty for the Blue." "Double
mine; those greys have him." "The blacks, the blacks, lay you a hundred to
one the blacks beat." Down, round, up, round, down, so fast they are only
dust puffs, one can scarcely see which is which. The horses are badly blown
now, and the drivers yell to them, and thrash their churning flanks. The
course is wet with sweat and blood, the wheels slide over the wet course.
Green negotiates the South curve with his chariot sideways; Blue skids over
to the flagged way and lames a horse on the stones. The Emperor is on his
feet, staring through his emerald spy-glass. Once more round for the last
egg and dolphin. Down for the last time, Blue's lame horse delays him, but
he flays him with the whip and the Green Corner finds them abreast. The
Greens on the seats burst upstanding. "Too far out! Well turned!" "The
Green's got it!" "Well done, Hirpinus!" The Green driver disappears up the
long side to the goal, waving his right hand, but Blue's lame horse staggers,
stumbles, and goes down, settling into the dust with a moan. Vortex of dust,
struggling horses, golden glitter of the broken chariot. "Overthrown, by the
Holy Moses! And hurt too! Well, well, he did his best, that beast always
looked skittish to me." "Is he dead, do you think? They've got the litter."
"Most likely. Green! Green! See, they're crowning him. Green and the
people! Oh-hé! Green!"
Cool and imperturbable, the four great gilt horses slowly pace above the
marble columns of the Grand Stand. They gaze out upon the lupin-blue
water beyond the Southern curve. Can they see the Island of Corfu from up
there, do you think? There are vessels at the Island of Corfu waiting to
continue a journey. The great horses trot forward without moving, and the
dust of the race-track sifts over them and blows away.
Constantinople from the Abbey of San Stefano: bubbles of opal and

amber thrust up in a distant sky, pigeon-coloured nebulæ closing the end of
a long horizon. Tilting to the little waves of a harbour, the good ships
Aquila, Paradiso, Pellegrina, leaders of a fleet of galleys: dromi,
hippogogi, vessels carrying timber for turrets, strong vessels holding
mangonels. Proud vessels under an ancient Doge, keeping Saint John's Day
at the Abbey of San Stefano, within sight of Constantinople.
Knights in blue and crimson inlaid armour clank up and down the gang-
planks of the vessels. Flags and banners flap loosely at the mast-heads.
There is the banner of Baldwin of Flanders, the standard of Louis of Blois,
the oriflamme of Boniface of Montferrat, the pennon of Hugh, Count of
Saint Paul, and last, greatest, the gonfalon of Saint Mark, dripped so low it
almost touches the deck, with the lion of Venice crumpled in its windless
folds.
Saint John's Day, and High Mass in the Abbey of San Stefano. They
need God's help who would pass over the double walls and the four hundred
towers of Constantinople. Te Deum Laudamus! The armoured knights make
the sign of the cross, lightly touching the crimson and azure devices on their
breasts with mailed forefingers.
South wind to the rescue; that was a good mass. "Boatswain, what's the
direction of that cat's-paw, veering round a bit? Good."
Fifty vessels making silver paths in the Summer-blue Sea of Marmora.

Fifty vessels passing the Sweet Waters, blowing up the Bosphorus.
Strike your raucous gongs, City of Byzantium. Run about like ants
between your golden palaces. These vessels are the chalices of God's wrath.
The spirit of Christ walking upon the waters. Or is it anti-Christ? This is the
true Church. Have we not the stone on which Jacob slept, the rod which
Moses turned into a serpent, a portion of the bread of the Last Supper? We
are the Virgin's chosen abiding place; why, the picture which Saint Luke
painted of her is in our keeping. We have pulled the sun's rays from the
statue of Constantine and put up the Cross instead. Will that bring us
nothing? Cluster round the pink and white striped churches, throng the
alabaster churches, fill the naves with a sound of chanting. Strike the terror-
gongs and call out the soldiers, for even now the plumed knights are
disembarking, and the snarling of their trumpets mingles with the beating of
the gongs.
The bronze horses on the Hippodrome, harnessed to the gilded quadriga,

step forward slowly. They proceed in a measured cadence. They advance
without moving. There are lights and agitation in the city, but the air about
the horses has the violet touch of night.
Now, now, you crossbowmen and archers, you go first. Stand along the
gunwales and be ready to jump. Keep those horses still there, don't let them
get out of order. Lucky we thought of the hides. Their damnable Greek fire
can't hurt us now. Up to the bridge, knights. Three of you abreast, on a level
with the towers. What's a shower of arrows against armour! An honourable
dint blotting out the head of a heron, half a plume sheared off a helmet so
that it leers cock-eyed through the press. Tut! Tut! Little things, the way of
war. Jar, jolt, mud—the knights clash together like jumbled chess-men, then
leap over the bridges. Confusion—contusion—raps—bangs—lurches—
blows—battle-axes thumping on tin shields; bolts bumping against leathern
bucklers. "A Boniface to the Rescue!" "Baldwin forever!" "Viva San
Marco!" Such a pounding, pummelling, pitching, pointing, piercing,
pushing, pelting, poking, panting, punching, parrying, pulling, prodding,
puking, piling, passing, you never did see. Stones pour out of the
mangonels; arrows fly thick as mist. Swords twist against swords, bill-
hooks batter bill-hooks, staves rattle upon staves. One, two, five men up a
scaling ladder. Chop down on the first, and he rolls off the ladder with his
skull in two halves; rip up the bowels of the second, he drips off the ladder
like an overturned pail. But the third catches his adversary between the legs
with a pike and pitches him over as one would toss a truss of hay. Way for
the three ladder men! Their feet are on the tower, their plumes flower,
argent and gold, above the muck of slaughter. From the main truck of the
ships there is a constant seeping of Venetians over the walls of
Constantinople. They flow into the city, they throw themselves upon the
beleaguered city. They smash her defenders, and crash her soldiers to mere
bits of broken metal.
Byzantines, Copts, Russians, Persians, Armenians, Moslems, the great

army of the Franks is knocking at the gates of your towers. Open the gates.
Open, open, or we will tear down your doors, and breach the triple
thickness of your walls. Seventeen burning boats indeed, and have the
Venetians no boat-hooks? They make pretty fireworks to pleasure our
knights of an evening when they come to sup with Doge Dandolo. At night
we will sleep, but in the morning we will kill again. Under your tents,
helmeted knights; into your cabin, old Doge. The stars glitter in the Sea of
Marmora, and above the city, black in the brilliance of the stars, the great
horses of Constantine advance, pausing, blotting their shadows against the
sprinkled sky.
From June until September, the fracas goes on. The chanting of masses,
the shouting of battle songs, sweep antiphonally over Constantinople. They
blend and blur, but what is that light tinkling? Tambourines? What is that
snapping? Castanets? What is that yellow light in the direction of the
Saracen mosque? My God! Fire! Gold of metals, you have met your king.
Ringed and crowned, he takes his place in the jewelled city. Gold of fire
mounted upon all the lesser golds. The twin tongues of flame flaunt above
the housetops. Banners of scarlet, spears of saffron, spikes of rose and
melted orange. What are the little flags of the Crusaders to these! They
clamoured for pay and won the elements. Over the Peninsula of Marmora it
comes. The whips of its fire-thongs lash the golden city. A conflagration
half a league wide. Magnificent churches, splendid palaces, great
commercial streets, are burning. Golden domes melt and liquefy, and people
flee from the dripping of them. Lakes of gold lie upon the pavements;
pillars crack and tumble, making dams and bridges over the hot gold. Two
days, two nights, the fire rages, and through the roar of it the little cries of
frightened birds come thin and pitiful. Earth pleading with fire. Earth
begging quarter of the awful majesty of fire. The birds wheel over
Constantinople; they perch upon the cool bronze horses standing above the
Hippodrome. The quiet horses who wait and advance. This is not their fire,
they trample on the luminousness of flames, their strong hind legs plant
them firmly on the marble coping. They watch the falling of the fire, they
gaze upon the ruins spread about them, and the pungence of charred wood
brushes along their tarnished sides like wind.
The Franks have made an Emperor and now the Greeks have murdered
him. The Doge asks for fifty centenaria in gold to pay his sailors. Who will
pay, now that the Emperor is dead? Declare a siege and pay yourselves,
Count, and Marquis, and Doge. Set your ships bow to stern, a half a league
of them. Sail up the Golden Horn, and attack the walls in a hundred places.
You fail to-day, but you will win to-morrow. Bring up your battering-rams
and ballistæ; hurl stones from your mangonels; run up your scaling ladders
and across your skin bridges. Winter is over and Spring is in your veins.
Your blood mounts like sap, mount up the ladder after it. Two ships to a
tower, and four towers taken. Three gates battered in. The city falls. Cruel
saints, you have betrayed your votaries. Even the relic of the Virgin's dress
in the Panhagia of Blachernæ has been useless. The knights enter
Byzantium, and their flickering pennants are the flamelets of a new
conflagration. Fire of flesh burning in the blood of the populace. They
would make the sign of the cross, would they, so that the Franks may spare
them? But the sap is up in the Frankish veins, the fire calls for fuel. Blood
burns to who will ignite it. The swords itch for the taste of entrails, the
lances twitch at sight of a Byzantine. Feed, Fire! Here are men, and women,
and children, full of blood for the relish of your weapons. Spring sap, how
many women! Good Frankish seed for the women of Byzantium. Blood and
lust, you shall empty yourselves upon the city. Your swords shall exhaust
themselves upon these Greeks. Your hands shall satisfy themselves with
gold. Spit at the priests. This is the Greek church, not ours. Grab the sacred
furniture of the churches, fornicate upon the high altar of Saint Sophia, and
load the jewels upon the donkeys you have driven into the church to receive
them. Old pagan Crusaders, this is the Orgy of Spring! Lust and blood, the
birthright of the world.
The bright, shining horses tread upon the clean coping of the
Hippodrome, and the Sea of Marmora lies before them like a lupin field run
over by a breeze.
What are you now, Constantinople? A sacked city; and the tale of your
plundering shall outdo the tale of your splendours for wonder. Three days
they pillage you. Burmese rubies rattle in the pockets of common soldiers.
The golden tree is hacked to bits and carried off by crossbowmen. An
infantry sergeant hiccoughs over the wine he drinks from an altar cup. The
knights live in palaces and dip their plumes under the arch of the Emperor's
bed-chamber.
In the Sea of Marmora, the good ships Aquila, Paradiso, Pellegrina
swing at anchor. The dromi and hippogogi ride free and empty. They bob to
the horses high above them on the Hippodrome. They dance to the rhythmic
beat of hammers floating out to them from the city of Constantinople.
Throb—throb—a dying pulse counts its vibrations. Throb—throb—and

each stroke means a gobbet of gold. They tear it down from the walls and
doors, they rip it from ceilings and pry it up from floors. They chip it off
altars, they rip it out of panels, they hew it from obelisks, they gouge it
from enamels. This is a death dance, a whirligig, a skeleton city footing a
jig, a tarantella quirked to hammer-stroke time; a corpse in motley ogling a
crime. Tap—tap—tap—goes the pantomime.
Grinning devils watch church cutting the throat of church. Chuckling

gargoyles in France, in Britain, rub their stomachs and squeeze themselves
together in an ecstasy of delight. Ho! Ho! Marquis Boniface, Count Hugh,
Sieur Louis. What plunder do you carry home? What relics do you bring to
your Gothic cathedrals? The head of Saint Clement? The arm of John the
Baptist? A bit of the wood of the True Cross? Statues are only so much
metal, but these are treasures worth fighting for. Fighting, quotha!
Murdering, stealing. The Pope will absolve you, only bring him home a tear
of Christ, and you will see. A tear of Christ! Eli, Eli, lama sabachthani! Oh,
pitiful world! Pitiful knights in your inlaid armour! Pitiful Doge, preening
himself in the Palace of Blachernæ!
Above the despoiled city, the Corinthian horses trot calmly forward,
without moving, and the quadriga behind them glitters in the sun.
People have blood, but statues have gold, and silver, and bronze. Melt
them! Melt them! "Gee! Haw!" Guide the oxen carefully. Four oxen to drag
the head of Juno to the furnace. White oxen to transport Minerva; fawn-
coloured oxen for the colossal Hercules of Lysippus. Pour them into the
furnaces so that they run out mere soft metal ripe for coining. Two foot-
sergeants get as much as a horse-sergeant, and two horse-sergeants as much
as a knight. Flatten out Constantinople. Raze her many standing statues,
shave the Augustaion to a stark stretch of paving-stones. Melt the bones of

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Application of Linear Programming to

the Theory of the Firm Robert Dorfman

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A PUBLICATION OF T H E BUREAU OF BUSINESS AND

Robert A . Brady Charles A . Gulick Roy W . Jastram Maurice Moonitz

Sanford A . Mösle, Acting Director

The opinions expressed in this study

All work in the field of linear programming must be deeply

If this volume were dedicated to anyone, it would be to the

I wish to thank the various publishers who have given

Harper & Brothers for permission to quote from Kenneth

I. Two Approaches to the Theory of the Firm 1

II. The Competitive Firm Using Fixed Factors 23

1. Formulation of the Problem 23

III. Production Scheduling for Monopolized Products 53

1. The Monopolist's Problem 53

IV. Assumptions, Limitations, and Possibilities 79

1. General Postulates of Maximization 79

Hie modern theory of the firm as expounded by Chamberlin (3)*,

Ricardo's theory (30) was based on a highly abstracted model

* Numbers in parentheses refer to the references at the end of the

Ricardo applied this model, essentially, to calculate the dis-

This model answered rather well to the problem which interested

of production to t h i s very day i s based upon t h e o r i g i n a l R i c a r -

Hie c l a s s i c a l Ricardian a n a l y s i s was a study of long-run eco-

The c r i t i c s have a l s o a t t e n p t e d the c o n s t r u c t i v e t a s k of answer-

Linear programming w i l l be d e s c r i b e d in t h i s book i n terms of

2. The Marginal Analysis

Hie marginal a n a l y s i s ( l i k e l i n e a r programming) i s concerned with

Hie marketing d e c i s i o n s w i l l n o t be discussed f u r t h e r in t h i s

Technical d e c i s i o n s are u s u a l l y banned from the economic f i e l d

quantities o f raw materials to produce a desired b i l l of products,

We assume as given by technical considerations the maximum

In general, there will be a maximum output for each set of in-

0.1 f(xv ..., xm; v v . . . . vn) = 0

A l i t t l e care i s needed in the definition o f t h i s function. For

We assume t h a t a p r i c e f u n c t i o n i s a s s o c i a t e d with each s a l -

0.4 <ij « 1j .... vn).

Hie c o s t of production i s then d e f i n e d to be:

0.7 a= r - c - kf(xl, xm; , vH)

and c a l c u l a t e the p a r t i a l d e r i v a t i v e s with r e s p e c t t o each of t h e

denote the marginal revenue obtained by producing an additional

The leading results of this analysis are obtained immediately

°'8 M(i0) dx.

Similarly, we find for the inputs:

which indicates that when optimum quantities of inputs j and j^

We have now obtained the "first-order" conditions for an op-

If the prices of all products and all factors are given to

(1) Corresponding to the condition price = marginal cost, we

This quotation summarizes the results of the marginal analy-

But in non-agricultural industries, the case is often other-

at the same time. It will not then be possible to move freely

The type of decision which faces a firm using industrial proc-

For the study of decisions in such an industrial milieu, em

X= (i2 ••• *k>-