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A note on the envelope theorem

Author

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  • Dassiou, Xeni
  • Glycopantis, Dionysius

Abstract

The purpose of this note is to discuss the envelope relationship between long run and short run cost functions. It compares the usually presented relationship with one of different form and implications, resulting from a simple production function and constant prices. It points out in particular that the tangency condition between the short and long run total cost functions does not necessarily hold always. The note also shows that a given value of the fixed factor might support in the long run a whole range of levels of output.

Suggested Citation

  • Dassiou, Xeni & Glycopantis, Dionysius, 2017. "A note on the envelope theorem," Economics Letters, Elsevier, vol. 150(C), pages 77-82.
    • Handle: RePEc:eee:ecolet:v:150:y:2017:i:c:p:77-82
    DOI: 10.1016/j.econlet.2016.11.006
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    References listed on IDEAS

    as
    1. Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-732, May.
    2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    3. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Short run; Long run; Marginal cost; Average cost; Envelope theorem; Corner solutions;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General

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