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Cost Minimization under Variable Input Prices: A Theoretical Approach

Author

Listed:
  • Agapie, Adriana

    (Bucharest University of Economic Studies, Romania)

  • Lima, Tony

    (California State University East Bay, Hayward, CA, USA,)

Abstract

It is generally admitted that fixed, low input prices for resources cause distortions in the input mix, in the sense of inefficient usage of resources.We consider a particular homogeneous functional form for representing the potential distortions in the input factor quantities in the context of deriving Cobb-Douglas cost functions and such a representation can offer a justification for why the average cost may behave eratically, altghough the technology remains unchanged. Fixed input prices become a special case. Our generalized form of Shepard3’s lemma allows us to interpret the corresponding input prices’s homogeneity orders as measures of the efficiency wages.

Suggested Citation

  • Agapie, Adriana & Lima, Tony, 2013. "Cost Minimization under Variable Input Prices: A Theoretical Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 70-86, June.
    • Handle: RePEc:rjr:romjef:v::y:2013:i:2:p:70-86
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    average cost; returns to scale; production; cost minimization; input supply function; marginal rate of technical substitution;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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