production, costs, and pricing

See also: record producer.

In microeconomics, production is the act of making things, in particular the act of making products that will be traded or sold commercially. Production decisions concentrate on what goods to produce, how to produce them, the costs of producing them, and optimizing the mix of resource inputs used in their production. This production information can then be combined with market information (like demand and marginal revenue) to determine the quantity of products to produce and the optimum price to charge. (In macroeconomics, production is measured by gross domestic product and other measures of national income and output.)

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 value
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 density
Economies of scale

the efficiency consequences of increasing or decreasing the level of production

Economies of scope

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

Pricing

various aspects of the pricing decision

Transfer pricing

selling within a multi-divisional company

Joint product pricing

price setting when two products are linked

Price discrimination

different prices to different buyers
types of price discrimination
yield management

Price skimming

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