Indirect Production Function

Abstract

We examine profit-maximizing producers faced with a budget constraint on inputs. The indirect production function provides a dual representation of technology, as it can be used to reconstruct the production function, and hence the technology set. It is also possible, under appropriate conditions, to use the indirect production function to immediately determine the cost function, and vice-versa. While we couch the presentation in terms of production, the development applies to the consumer setting in which output is interpreted as consumer utility, and the consumer wishes to maximize his utility subject to a budget constraint on expenditures. Throughout this chapter we make the following assumption: Assumption 1 The derived production function Φ(·) is continuous.