A computational method for the maximization of long-run and short-run profit

Abstract

Maximization of the profit is an important issue to the firms that pursue the most possible profit. Traditionally, profit maximization problem is solved by differentiating with respect to input prices. Different from traditional approaches, this paper develops a computational method to calculate the profit value for the long-run and short-run via geometric programming. The geometric programming technique not only gives the global optimum solution but also provides the information that is able to discover the relationship between profit maximization and returns to scale in the solution process. More importantly, geometric programming can provide a computationally attractive view of sensitivity analysis for the changes in parameters. Such information on sensitivity is hardly available from the traditional approaches. The computational method introduced in this paper might help extend the developments and applications in the calculation of the profit.