The envelope theorem appeared in economics following the 1931 Viner–Wong diagram (incorrectly drawn in the original paper). This famous paper indicated that, starting at some minimum cost input combination, the change of average cost when output changed was the same whether or not other inputs were allowed to vary or were held fixed. This puzzling result remained mostly a curiosity until the 1970s when, with the use of a generalization of this diagram, the modern theory of duality was developed. This new approach to comparative statics provided a clearer explanation for the appearance of refutable implications in maximization models.
KeywordsComparative statics Constrained optimization models Cost functions Envelope theorem Lagrange multipliers Primal-dual model Shadow pricing
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