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How to Generate Good Profit Maximization Problems

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  • Lewis Davis

Abstract

In this article, the author considers the merits of two classes of profit maximization problems: those involving perfectly competitive firms with quadratic and cubic cost functions. While relatively easy to develop and solve, problems based on quadratic cost functions are too simple to address a number of important issues, such as the use of second-order conditions and the short-run shutdown condition. Problems based on cubic cost functions are mathematically richer but often involve messy arithmetic; furthermore, many are not plausible representations of a firm's costs. Finding cubic functions that do not suffer from these drawbacks can be a time-consuming process. The author addresses this issue by providing a procedure to generate profit maximization problems that are theoretically interesting, economically plausible, and computationally simple.

Suggested Citation

  • Lewis Davis, 2014. "How to Generate Good Profit Maximization Problems," The Journal of Economic Education, Taylor & Francis Journals, vol. 45(3), pages 183-190, September.
    • Handle: RePEc:taf:jeduce:v:45:y:2014:i:3:p:183-190
    DOI: 10.1080/00220485.2014.917564
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    Cited by:

    1. Murphy, Sinnott & Sowell, Fallaw & Apt, Jay, 2019. "A time-dependent model of generator failures and recoveries captures correlated events and quantifies temperature dependence," Applied Energy, Elsevier, vol. 253(C), pages 1-1.
    2. Joseph G. Eisenhauer, 2018. "Algebraic Optimization: Marginal Analysis without Calculus," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 18(1), pages 16-27, Spring.
    3. Spencer Henson & Jessica Agnew, 2021. "Are market‐based solutions a viable strategy for addressing micronutrient deficiency? Lessons from case studies in sub‐Saharan Africa and South Asia," Development Policy Review, Overseas Development Institute, vol. 39(2), pages 233-249, March.
    4. Xiaoyong Li & Giuseppe T. Cirella & Yali Wen & Yi Xie, 2020. "Farmers’ Intentions to Lease Forestland: Evidence from Rural China," Land, MDPI, vol. 9(3), pages 1-18, March.

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