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Optimisation of Production Under Restrictions

In: Production Economics

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  • Svend Rasmussen

    (University of Copenhagen)

Abstract

The general criteria for the adjustment of production when product and factor prices change were described in Chaps. 3, 4, and 5. The general results are derived under the general assumption that the producers wish to maximise profit. The general criterion for profit maximisation is that the addition of input should be continued as long as the increase in total revenue (i.e. marginal revenue) is greater than the increase in costs (i.e. marginal costs). This general criterion includes the following two criteria as special cases: (1) The value of the marginal product for all (variable) inputs must be equal to the price of the corresponding input (VMP i = w i ), and (2)The marginal costs must be equal to the price of output (MC = p y ).

Suggested Citation

  • Svend Rasmussen, 2013. "Optimisation of Production Under Restrictions," Springer Texts in Business and Economics, in: Production Economics, edition 2, chapter 10, pages 95-110, Springer.
    • Handle: RePEc:spr:sptchp:978-3-642-30200-8_10
    DOI: 10.1007/978-3-642-30200-8_10
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