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Solving Cost Minimization Problem with Cobb- Douglas Technology via Geometric Programming

Cost minimization problem is a standard and very important problem in economics. In economic literature, there are two common ways to solve the cost minimization problem: substitution method and Lagrange multiplier method. Both methods use differential calculus, which may lead to some complicated steps that are not easy to solve. In this paper, we treat the cost minimization problem as a geometric programming problem. In this way, we solve the cost minimization problem without the use of calculus. The geometric programming approach is very straightforward and easy and differential calculus is not required, so this approach is understadable for many of those who are not necessary familiar with tools of mathematical analysis. Furthermore, geometric programming enables very simple sensitivity analysis for the changes in parameters, which we present in this paper.

Cost minimization ; Cobb-Douglas technology ; Geometric programming ; Sensitivity analysis

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