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Prices of production refers to a concept in Karl Marx's critique of political economy. It is introduced in the third volume of Das Kapital, where Marx considers the operation of capitalist production as the unity of a production process and a circulation process involving commodities, money and capital. The argument is that the exchange of newly produced commodities in capitalist markets is regulated by their production prices. The regulating price of a type of product is a sort of modal average, above or below which people would be much less likely to trade the product. So it refers basically to a "normal or dominant price level" that prevails during a longer interval of time. It presupposes that both the inputs and the outputs of production are priced goods and services, i.e. that production is integrated in fairly sophisticated market relations enabling a sum of capital invested into it to be transformed into a larger sum of capital. For most political economists, this kind of price corresponds roughly to Adam Smith's concept of "natural prices" and the modern neoclassical concept of long-term competitive equilibrium prices under constant returns to scale. However, the function of prices of production within Marxian theory is different from that of these other concepts in their own theories. Simply put, Marx's "price of production" (P) is a price which applies to sales of new outputs produced, and it equals cost price (cp) + average profit (ap). The cost price could be computed as the unit-cost of a product, the profit component being the mark-up. The amount ap is often assumed to have the same magnitude relative to the amount of capital invested in all sectors, seemingly representing an equilibrium of flows of capital between different parts of a capitalist economy that results in a "general rate of profit". Thus,
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