Some large hardware stores, such as Home Depot, boast of carrying as many as 20,000 different products in each store. What motivated the producers of those individual products to make them and offer them for sale? How did the producers decide on the best combinations of resources to use? Who made those resources available, and why? Who decides whether these particular hardware products should continue to be produced and offered for sale?

A firm decides what to produce depending on the profits it can garner from the sale. Profits and total revenue over the total cost encourage firms to expand production or new firms to enter.

For example, if in selling a piece of cloth, higher demand results in higher profits, the production, and supply of the cloth will increase.

A producer aims to maximize the revenue from the sale of the goods. Since a producer can only control his/her spending on inputs and not the spending of consumers, the decision of input combination becomes crucial in the production process. Thus, the best input combination would be the one with the minimum cost so that the producer can increase profits.

For example, a firm will produce goods in a lost-cost location (cheap labor and capital) to reduce its production expenses.

Consumers provide these resources by spending on the goods. This helps producers in purchasing inputs for the next cycle of production. Consumers spend their income to fulfill their own needs and wants. The factors of production, such as land and labor are also owned by the consumers and further by businesses.

The consumer demand results in revenue generation for the hardware firms. If this revenue is more than the cost of production of hardware products, producers will generate profits, and the production will continue.

If the revenue falls short of cost, the production will be discontinued. Indirectly, consumers decide if the production and sale of hardware products should continue or not.