Economic Aspects of Profit Maximization if Cost of Principal Raw Material Increases

Abstract

In this study sensitivity analysis of various inputs is discussed, when per unit cost of principal raw materials is increased. The organization has its main target of achieving maximum profit through the adjustment of various inputs and outputs in future production. In this study Cobb-Douglas production function is considered as a profit function to investigate sensitivity analysis during profit maximization procedures. In this article the method of Lagrange multiplier is applied to represent higher dimensional unconstrained problem from the lower dimensional constrained problem. Moreover, the determinant of the 6×6 bordered Hessian matrix and 6×6 Jacobian are applied for the augmentation of the sensitivity analysis efficiently.