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Used Capital: Implications for Isoquants, Production Functions, and Shepard's Lemma

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  • Edward M. Miller

Abstract

The quantity of capital services provided by a used capital good is usually defined so as to be proportional to the good's rent. Except in special circumstances, with this definition, isoquants will have a linear segment coinciding with part of the minimum cost isocost line; the production function will not be strictly quasi-concave; the cost function will not be differentiable; Shephard's lemma will not be applicable; and factor inputs will not be functions of factor prices. Similar problems occur for land a nd labor if their quality can vary.

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  • Edward M. Miller, 1988. "Used Capital: Implications for Isoquants, Production Functions, and Shepard's Lemma," Eastern Economic Journal, Eastern Economic Association, vol. 14(2), pages 141-152, Apr-Jun.
    • Handle: RePEc:eej:eeconj:v:14:y:1988:i:2:p:141-152
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