Short-run and long-run marginal costs of joint products in linear programming

Axel Pierru (1) , Denis Babusiaux (1)

1 IFPEN - IFP Energies nouvelles

In standard microeconomic theory, short-run and long-run marginal costs are equal for production equipment with adjusted capacity. When the production of joint products from interdependent equipment is modeled with a linear program, as in oil refining, this equality is no longer verified. The short-run marginal cost then takes on a left-hand value and a right-hand value which generally differ from the long-run marginal cost. In this article, we demonstrate and interpret the relationship existing between long-run marginal cost and short-run marginal costs for a given finished product. That relationship is simply expressed as a function of marginal capacity adjustments (determined in the long run) and marginal values of capacities (determined in the short run).

Domains: Humanities and Social Sciences; Economics and Finance

Axel Pierru, Denis Babusiaux. Short-run and long-run marginal costs of joint products in linear programming: Cahiers de l'Economie, Série Recherche, n° 68. 2008. ⟨hal-02469431⟩