A geometric programming approach to profit maximization

Abstract

Traditionally, profit maximization problem is solved by differentiating with respect to input prices. The total differentiation of the first-order conditions might give complicated equations difficult to handle. Different from traditional approaches, this paper employs geometric programming technique to derive the objective value for the long-run profit maximization. The geometric programming approach 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. No differentiation is required. Moreover, geometric programming can provide a computationally attractive view of sensitivity analysis for the changes in parameters.