Axel PIERRU (Center for economics and management, IFP School)
Abstract
In standard microeconomic theory, short-run and long-run marginal costs are equal for production equipment with adjusted capacity. When the production of joint products from interdependent equipment is modeled with a linear program, tins equality is no longer verified. The short-run marginal cost then takes on a left-hand value and a right-hand value which generally differ from the long-run marginal cost. In this article, we demonstrate and interpret the relationship existing between long-run marginal cost and short-run marginal costs for a given finished product. That relationship is simply expressed as a function of marginal capacity adjustments (determined in the long run) and marginal values of capacities (determined in the short run).
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Find related papers by JEL classification: D20 - Microeconomics - - Production and Organizations - - - General C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
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