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 extensio n of neoclassical economics in which the technological performance of a product is allowed to vary. The product's unit production costs is p resented as a function of its technological performance, production ra te, and product-design and production investments. Likewise, the produ ct'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 equati on, a general theory of a manufacturing firm's profitability is achiev ed. Its mathematical feasibility is confirmed through a numerical exam ple. Its conceptual validity, on the other hand, is confirmed by using it to interpret historical episodes of technological change. The theo ry 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.