Cost Minimization of a Competitive Firm
AbstractOne of the economists’ missions is to predict the behavioral responses of consumers or firms on the assumption that optimizing continues. Once this capability is developed, economists try to manage “today” to optimize future economic return of the inputs. Techniques to predict future performance vary from an educated guess based on an appropriate analogy to very complex analytical and numerical calculations and approximations. However, what they all have in common is that they analyze performance in past to say something to obtain constrained optimal output in future. Considering Lagrange multiplier technique applied to a firm’s cost minimization problem subject to production function as an output constraint, an attempt has been made in this paper to apply necessary and sufficient conditions for optimal values. We gave interpretation of Lagrange multiplier and showed that its value is positive. Examining the behavior of the firm; that is, if the cost of a particular input increases, the firm needs to consider decreasing level of that particular input; at the same time, there is no effect on the level of other inputs; also that when the demand of product increases, the firm should consider increasing its level of inputs: capital, labour and other inputs, have been derived.
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Bibliographic InfoArticle provided by Department of Business Administration in its journal Indus Journal of Management & Social Science (IJMSS).
Volume (Year): 2 (2008)
Issue (Month): 2 (December)
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Lagrange Multiplier; Optimization; Cost Minimization; Cobb-Douglas Production Function.;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
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- Pahlaj Moolio & Jamal Nazrul Islam & Haradhan Kumar Mohajan, 2009.
"Output Maximization of an Agency,"
Indus Journal of Management & Social Science (IJMSS),
Department of Business Administration, vol. 3(1), pages 39-51, June.
- Islam, Jamal & Mohajan, Haradhan & Moolio, Pahlaj, 2011.
"Output Maximization Subject to a Nonlinear Constraint,"
50676, University Library of Munich, Germany, revised 08 Nov 2011.
- Jamal NazrulIslam & Haradhan Kumar Mohajan & Pahlaj Moolio, 2011. "Output Maximization Subject to a Nonlinear Constraint," KASBIT Journal of Management & Social Science, Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 116-128, December.
- repec:ksb:journl:v:4:y:2011:i:1:p:116-128 is not listed on IDEAS
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