A DIAGRAMMATIC APPROACH FOR TEACHING SOME ASPECTS OF PRODUCTION‐COST DUALITY

Production‐cost duality was first introduced by Ronald Shephard (1953) in his seminal study, Cost and Production Functions. The application of duality to production and cost was extended by Uzawa (1962, 1964). However, not until the 1970s did the Shephard‐Uzawa duality analysis achieve its influential role in modern microeconomic thought. In simple words, the Shephard‐Uzawa duality theorem indicates that a firm's cost function summarizes all of the relevant features of the production technology, whereas the firm's production function contains all of the relevant features of the cost function for each set of input and output prices. If certain standard technical conditions (i.e., relating to convexity and continuity) are satisfied, then the theorem implies that there is a one‐to‐one relationship between points on the cost surface and points on the production surfaces.