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Cost-of-production theory of value - Definition and Overview |
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In 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 technology.
Two of the most common cost-of-production theories are the medieval just price theory and the classical labor theory of value. The labor theory of price, which interprets labor-value as the determinant of prices, is still subscribed to by many Marxist economists. The "neo-Ricardian school (http://cepa.newschool.edu/het/schools/neoric.htm)" of Piero Sraffa and his followers provides a more sophisticated theory of cost-determined prices.
The most common counterpoint to this is the marginal theory of value which asserts that economic value is set by the consumer's marginal utility. This is by far the more widely accepted view in modern economics.
The Polish economist Michal Kalecki (http://cepa.newschool.edu/het/profiles/kalecki.htm) distinguished between sectors with "cost-determined prices" (such as manufacturing and services) and those with "demand-determined prices" (such as agriculture and raw material extraction).
See also
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Example Usage of Cost-of-production |
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eye4investing: BNP.UN low cost of production and reasonable dept with 8.8% but may see some softness if gas drops lower in late winter |
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profitpuzzle: "Breakdown the cost of production for any small business product you want to profit from!" |
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gfscott: @ivortossell Fair point for coffee. But at the moment journalism consumers mostly get their product for *below* the cost of production. |
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