Integrating Production and Utility Theory to Enhance Efficiency and Consumer Welfare in the Kenyan Manufacturing Sector

Abstract

Microeconomic theory provides essential analytical tools for examining firm behavior and consumer decision-making under conditions of scarcity and uncertainty. This paper applies production theory and utility theory to analyze efficiency challenges and demand dynamics in Kenya's fish-processing industry, specifically in Mombasa. On the production side, the study highlights how limited cold-chain infrastructure, unreliable energy supply, and low adoption of modern preservation technologies contribute to technical inefficiency, high post-harvest losses, and constrained returns to scale. These issues prevent processors from achieving minimum efficient scale and reduce competitiveness in high-value markets such as supermarkets, hotels, and export channels. On the demand side, utility theory demonstrates that consumer preferences for freshness, hygiene, food safety, convenience, and affordability significantly shape purchasing behavior, with notable differences across income groups. Risk perceptions and information asymmetries further influence willingness to pay, reinforcing the importance of certification, traceability, and quality assurance systems. By integrating production and utility theory, the paper establishes how improvements in handling, storage, and value addition on the production side translate into higher consumer utility and stronger market performance. The study recommends practical strategies, including renewable-energy cold storage, product differentiation, forward contracting, and vertical coordination with fishers to stabilize supply and improve quality. Policy implications emphasize the need for affordable finance, energy investments, skills development, and strengthened food safety regulations to support firm efficiency and enhance consumer welfare within Kenya's manufacturing value chain.