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Cost Minimization under Variable Input Prices: A Theoretical Approach

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Author Info

  • Agapie, Adriana

    ()
    (Bucharest University of Economic Studies, Romania)

  • Lima, Tony

    ()
    (California State University East Bay, Hayward, CA, USA,)

Abstract

It is generally admitted that fixed, low input prices for resources cause distortions in the input mix, in the sense of inefficient usage of resources.We consider a particular homogeneous functional form for representing the potential distortions in the input factor quantities in the context of deriving Cobb-Douglas cost functions and such a representation can offer a justification for why the average cost may behave eratically, altghough the technology remains unchanged. Fixed input prices become a special case. Our generalized form of Shepard3’s lemma allows us to interpret the corresponding input prices’s homogeneity orders as measures of the efficiency wages.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2013)
Issue (Month): 2 (June)
Pages: 70-86

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Handle: RePEc:rjr:romjef:v::y:2013:i:2:p:70-86

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Related research

Keywords: average cost; returns to scale; production; cost minimization; input supply function; marginal rate of technical substitution;

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References

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  1. Alan S. Blinder, 1981. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," NBER Working Papers 0620, National Bureau of Economic Research, Inc.
  2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  3. Emilian Dobrescu, 2009. "Estimating the Total Factor Productivity in Romanian Economy," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(26), pages 512-521, June.
  4. Dobrescu, Emilian, 2013. "Restatement of the I-O Coefficient Stability Problem," Working Papers of Macroeconomic Modelling Seminar 132601, Institute for Economic Forecasting.
  5. Robert J. Gordon, 1981. "Output Fluctuations and Gradual Price Adjustment," NBER Working Papers 0621, National Bureau of Economic Research, Inc.
  6. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
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