The Wong-Viner Envelope Theorem for subdifferentiable functions
AbstractThe Wong-Viner Envelope Theorem on the equality of long-run and short-run marginalcosts (LRMC and SRMC) is reformulated for convex but generally nondifferentiable costfunctions. The marginal cost can be formalized as the multi-valued subdifferential a.k.a.the subgradient set but, in itself, this is insufficient to extend the result effectively, i.e., toidentify suitable SRMCs as LRMCs. This goal is achieved by equating the profit-imputedvalues of the fixed inputs to their prices. Thus reformulated, the theorem is proved froma lemma on the sections of the joint subdifferential of a bivariate convex function. Thenew technique is linked to the Partial Inversion Rule of convex calculus.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number /2005/489.
Date of creation: Apr 2005
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Wong-Viner Envelope Theorem; nondifferentiable joint costs; profit-imputedvaluation of fixed inputs; general equilibrium; public utility pricing.;
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