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Economic Theory

, Volume 40, Issue 2, pp 173–183 | Cite as

Profit maximization and supermodular technology

  • Christopher P. Chambers
  • Federico EcheniqueEmail author
Research Article

Abstract

A dataset is a list of observed factor inputs and prices for a technology; profits and production levels are unobserved. We obtain necessary and sufficient conditions for a dataset to be consistent with profit maximization under a monotone and concave revenue based on the notion of cyclic monotonicity. Our result implies that monotonicity and concavity cannot be tested, and that one cannot decide if a firm is competitive based on factor demands. We also introduce a condition, cyclic supermodularity, which is both necessary and sufficient for data to be consistent with a supermodular technology. Cyclic supermodularity provides a test for complementarity of production factors.

Keywords

Complementarity Afriat’s theorem Factor demands Revealed preference 

JEL Classification

D21 D24 

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Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Division of the Humanities and Social SciencesCalifornia Institute of TechnologyPasadenaUSA

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