Pseudoconvexity properties of average cost functions

Abstract

It is well known that short run cost functions of firms are convex functions when production functions are concave [14]. Average cost minimization as a classical economics problem has been studied in fundamental textbooks [14,4,7,8] and in the literature [2,3,9,12,13,1]. However, it seems that less attention so far has been paid to the study of properties of the average cost function and its minimization methods. The aim of this paper is to fulfill this gap. First, we show that average cost functions are pseudoconvex. Second, we develop an algorithm for solving the average cost minimization problem. We implement the algorithm to solve a real carpet manufacturing problem in Mongolia.