engleski

On the cost minimization problem with ces technology: reverse Hölder’s inequality approach

A common application of mathematical programming in microeconomics is solving the firm’s cost minimization problem. This is a constrained optimization problem that considers a firm minimizing its cost of producing a given level of output. A standard procedure for solving this problem is the use of differential calculus, i.e. Lagrange multiplier method. In order to find the solution by using calculus, a necessary and sufficient condition needs to be examined. If the technology is described by constant elasticity of substitution (CES) production function, the use of differential calculus is not trivial. Therefore, in this paper we provide a new complementary approach of obtaining the solution. Our methodology uses only the definition of a minimum and the reverse Hölder’s inequality. We show that in case of CES production function our methodology provides an easier way of obtaining solution than the method based on calculus.

microeconomics ; cost minimization ; CES production function ; constrained optimization ; reverse Hölder’s inequality ; without calculus

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