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Short-run and long-run marginal costs of joint products in linear programming

  • Axel PIERRU

    (Center for economics and management, IFP School)

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    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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    File URL: http://sites.uclouvain.be/econ/DP/REL/2007022.pdf
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    Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2007022.

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    Length: 20
    Date of creation: 01 Jun 2007
    Date of revision:
    Handle: RePEc:ctl:louvre:2007022
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    1. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    2. Dennis Anderson, 1972. "Models for Determining Least-Cost Investments in Electricity Supply," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 267-299, Spring.
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