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

Stephen D. Casler

The Journal of Economic Education, 2013, vol. 44, issue 3, 249-267

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.

Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/00220485.2013.795459

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