AN ECONOMIC-THEORY OF TECHNOLOGICAL PRODUCTS

This paper presents the derivation and justification of a new economic theory of a manufacturing firm. It represents a mathematical extension of neoclassical economics in which the technological performance of a product is allowed to vary. The product's unit production costs is presented as a function of its technological performance, production rate, and product-design and production investments. Likewise, the product's unit sales price is presented as a function of its technological performance, sales rate, and advertising and marketing investments. By placing these price and cost functions in an elementary profit equation, a general theory of a manufacturing firm's profitability is achieved. Its mathematical feasibility is confirmed through a numerical example. Its conceptual validity, on the other hand, is confirmed by using it to interpret historical episodes of technological change. The theory of technological products is also used to calculate the conditions for maximizing the long-term profitability of a firm. The results show that neoclassical microeconomics is a restricted case of this theory.