The main purpose of this study was to gain insight into the household and farm economics of small-scale dairy farmers in Hanoi, and to obtain estimates of their costs per unit of output in milk production so as to gauge their potential for improvement and vulnerability to international competition. Costs of production are assessed using market prices and 'social' prices using a policy analysis matrix (PAM) approach. The study applies a method of economic analysis developed by the International Farm Comparison Network (IFCN) which is based on the concept of 'typical farms'. Three farm types were selected to represent typical farms in the region of Hanoi, Viet Nam. The farms were located in two villages near Hanoi (10 to 15 km away), benefiting from good market access. The farms kept two, four and five crossbred dairy cows and practiced stall-feeding. Each farm was analyzed in detail and assets, production costs, profits and other economic information are presented graphically and are described in the text. A policy analysis using the PAM methodology is carried out for each of the typical farms. Furthermore, a preliminary analysis of the dairy chain in Hanoi was conducted. Applying market prices, cost of milk production varies from 11.5 to 17.0 US$ per 100 kg energy corrected milk. The farm with four dairy cows has the lowest costs (11.5 US$), which is mainly due to lower labour costs for family labour and lower costs for means of production. A set of PAM ratios shows that farm outputs are supported and inputs are taxed by 21.5 and 20.0 percent respectively. The net result is that all farms benefit significantly from current policies and market conditions and about 24 percent of the private returns of the farms come from external support. Public support for the farms ranges from 6.0 US$/100 kg milk for the smallest to 9.5 US$/100 kg milk to the largest farm. The high level of support clearly indicates a high degree of imperfection in the Vietnamese dairy market. Consequently, there should be potential for increasing productivity and competitiveness through policy measures.