Cost Minimization of a Competitive Firm

Pahlaj Moolio and Jamal Nazrul Islam ()
Additional contact information
Jamal Nazrul Islam: University of Chittagong, Chittagong, Bangladesh.

Indus Journal of Management & Social Science (IJMSS), 2008, vol. 2, issue 2, 148-160

Abstract: One of the economists’ missions is to predict the behavioral responses of consumers or firms on the assumption that optimizing continues. Once this capability is developed, economists try to manage “today” to optimize future economic return of the inputs. Techniques to predict future performance vary from an educated guess based on an appropriate analogy to very complex analytical and numerical calculations and approximations. However, what they all have in common is that they analyze performance in past to say something to obtain constrained optimal output in future. Considering Lagrange multiplier technique applied to a firm’s cost minimization problem subject to production function as an output constraint, an attempt has been made in this paper to apply necessary and sufficient conditions for optimal values. We gave interpretation of Lagrange multiplier and showed that its value is positive. Examining the behavior of the firm; that is, if the cost of a particular input increases, the firm needs to consider decreasing level of that particular input; at the same time, there is no effect on the level of other inputs; also that when the demand of product increases, the firm should consider increasing its level of inputs: capital, labour and other inputs, have been derived.

Keywords: Lagrange Multiplier; Optimization; Cost Minimization; Cobb-Douglas Production Function. (search for similar items in EconPapers)
JEL-codes: C51 C61 C67 L11 L23 L25 (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://indus.edu.pk/RePEc/iih/journl/6-CostMinimiz ... JamalNazrulIslam.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iih:journl:v:2:y:2008:i:2:p:148-160

Access Statistics for this article

Indus Journal of Management & Social Science (IJMSS) is currently edited by Dr. Gobind M Herani

More articles in Indus Journal of Management & Social Science (IJMSS) from Department of Business Administration
Bibliographic data for series maintained by Faraz Ahmed ( this e-mail address is bad, please contact ).