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Cost Minimization and Elasticity Estimation: A Two-Input, Two-Time Period Analysis

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  • Stephen D. Casler

Abstract

Given data on input price changes and the resulting changes in optimal input use, a means of estimating numerical elasticity values for the two-input, two-time period case is presented in this article. The estimation procedure stems directly from the model of cost minimization subject to producing a given level of output. By showing the direct link from the world of theory to that of measurement, the author provides an interesting framework to illustrate the cost-minimization model's implications beyond the study of first- and second-order conditions. In developing estimation equations, opportunities arise for presenting and reviewing key economic concepts and mathematical techniques. The connection of the theoretical model with a numerical application helps students better appreciate the relevance of theory in finding quantitative answers to economic problems.

Suggested Citation

  • Stephen D. Casler, 2013. "Cost Minimization and Elasticity Estimation: A Two-Input, Two-Time Period Analysis," The Journal of Economic Education, Taylor & Francis Journals, vol. 44(3), pages 249-267, September.
    • Handle: RePEc:taf:jeduce:v:44:y:2013:i:3:p:249-267
    DOI: 10.1080/00220485.2013.795459
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    Cited by:

    1. Stephen D. Casler, 2015. "Why Growth Rates? Which Growth Rate? Specification and Measurement Issues in Estimating Elasticity Values," The American Economist, Sage Publications, vol. 60(2), pages 142-161, September.
    2. Mingan Zhu & Bihang Fan, 2021. "Exploring the Relationship between Rising Temperatures and the Number of Climate-Related Natural Disasters in China," IJERPH, MDPI, vol. 18(2), pages 1-11, January.

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