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Published August 2009 | Published
Journal Article Open

Profit maximization and supermodular technology


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.

Additional Information

© Springer-Verlag 2008. Received: 5 December 2006. Accepted: 1 February 2008. Published online: 26 February 2008. We are very grateful to two anonymous referees for suggestions, comments, and corrections. We also thank Kim Border for his suggestions on an earlier draft.

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