Cost Minimization under Variable Input Prices: A Theoretical Approach

Adriana Agapie () and Tony Lima
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Adriana Agapie: Bucharest University of Economic Studies, Romania

Journal for Economic Forecasting, 2013, issue 2, 70-86

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.

Keywords: average cost; returns to scale; production; cost minimization; input supply function; marginal rate of technical substitution (search for similar items in EconPapers)
JEL-codes: C00 D24 O30 O33 (search for similar items in EconPapers)
Date: 2013
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