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ERIC Number: EJ1032292
Record Type: Journal
Publication Date: 2014
Pages: 8
Abstractor: As Provided
Reference Count: 8
ISSN: ISSN-0022-0485
How to Generate Good Profit Maximization Problems
Davis, Lewis
Journal of Economic Education, v45 n3 p183-190 2014
In this article, the author considers the merits of two classes of profit maximization problems: those involving perfectly competitive firms with quadratic and cubic cost functions. While relatively easy to develop and solve, problems based on quadratic cost functions are too simple to address a number of important issues, such as the use of second-order conditions and the short-run shutdown condition. Problems based on cubic cost functions are mathematically richer but often involve messy arithmetic; furthermore, many are not plausible representations of a firm's costs. Finding cubic functions that do not suffer from these drawbacks can be a time-consuming process. The author addresses this issue by providing a procedure to generate profit maximization problems that are theoretically interesting, economically plausible, and computationally simple.
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Publication Type: Journal Articles; Reports - Evaluative
Education Level: Higher Education; Postsecondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A