Hartly's Demand-Price Analysis in a Case of Joint Production: A Comment.
The article comments on professor Ronald V. Hartley's article on linear programming models of a joint cost problem considered in managerial accounting textbooks. Unfortunately, linear programming models do not readily admit demand functions into their structure. The result is that the optimal production schedule arising from such a model is conditional on a particular set of prices and that the demand function must be accommodated in a separate analysis which Hartley calls a "price-demand analysis." The question is how the effect on profit of such overproduction can be represented in the decision model. Hartley notes another case that cannot be completely accommodated by a linear model. It is the case in which all or part of the excess production will be taken by the market if the price on all units of that product is lowered. This paper recommends reformulation of the joint cost problem as a nonlinear programming problem in which a demand function is given explicit representation. The nonlinear model simultaneously determines the optimal price and output policies, and its application is less likely to lead to confusion and error.
- DOI
- 10.2308/tar-4482506
- Volume
- 48 (4)
- Pages
- 768-770
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref