Home > Production, costs, and pricing

(In macroeconomics, production is measured by gross domestic product and other measures of national income and output.)

1 Aspects of production and pricing theory

• Production theory basics
  • production efficiency
  • factors of production
  • total, average, and marginal product curves
  • marginal productivity
  • isoquants
  • the marginal rate of technical substitution
• Economic rent
  • classical factor rents
  • Paretian factor rents
• Production possibility frontier
  • what products are possible given your resources
  • the trade-off between producing one product rather than another
  • the marginal rate of transformation
• Production function
  • inputs
  • diminishing returns to inputs
  • the stages of production
  • shifts in a production function
• Cost theory
  • the different types of costs
    • opportunity cost
    • accounting cost or historical costs
    • transaction cost
    • sunk cost
    • marginal cost
  • the isocost line
• Cost-of-production theory of valueIn economics, the cost-of-production theory of value is the belief that the value of an object is decided by the resources that went into making it. The cost can be composed of any of the factors of production including labour, capital, land, or technolog
• Long-run cost and production functions
  • long-run average cost curves
  • long-run production function and efficiency
  • returns to scale and isoclines
  • minimum efficient scale
  • plant capacity
• Economies of scaleIn economics, economies of scale are situations where the average unit cost of producing a good or service decreases as the volume of production increases. The converse situation in which the cost of producing a good or service increases as the volume of
  • the efficiency consequences of increasing or decreasing the level of production
• Economies of scopeEconomies of scope are conceptually similar to Economies of scale. Whereas economies of scale apply to efficiencies associated with increasing or decreasing the scale of production, economies of scope refer to efficiencies associated with increasing or de
  • the efficiency consequences of increasing or decreasing the number of different types of products produced, promoted, and distributed
• Optimum factor allocation
  • output elasticity of factor costs
  • marginal revenue product
  • marginal resource cost
• PricingPricing is one of the four aspects of marketing. The other three parts of the marketing mix are product management, promotion, and distribution. It is also a key variable in microeconomic price allocation theory. Pricing involves asking questions like: Ho
  • various aspects of the pricing decision
• Transfer pricingTransfer pricing refers to the pricing of goods and services within a multi-divisional organization. Goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary. The choice o
  • selling within a multi-divisional company
• Joint product pricingPricing for joint products is a little more complex that pricing for a single product. To begin with there are two demand curves. The characteristics of each demand curve could be different. Demand for one product could be greater than for the other produ
  • price setting when two products are linked
• Price discriminationPrice discrimination exists when sales of identical goods or services are transacted at different prices from a single vendor. Theoretically, price discrimination is a feature only of monopoly markets. In addition to a monopoly market, price discriminatio
  • different prices to different buyers
  • types of price discrimination
  • yield management
• Price skimmingPrice skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its
  • price discrimination over time
• Two part tariffs
  • charging a price comprised of two parts, usually an initial fee and an ongoing fee
• Price points
  • the effects of a non-linear demand curve on pricing
• Cost-plus pricing
  • a markup is applied to a cost term in order to calculate price
  • cost-plus pricing with elasticity considerations
  • cost plus pricing is often used along with break even analysis
• Rate of return pricing
  • calculate price based on the required rate of return on investment, or rate of return on sales
• Profit maximization
  • determining the optimum price and quantity
  • the totals approach
  • the marginal approach