The Diewert cost function (as described in Microeconomic Analysis by Hal Varian 3rd Edition) takes the form of:


Varian goes on to say (page 209)

For this functional form, we require that $b_{ij}=b_{ji}$. Note we can also write this form as: $$c(w,y)=y\left[\sum_{i=1}^kb_{ii}w_i+\sum_{i\neq j}\sum_{j \neq i}b_{ij}\sqrt{w_iw_j}\right]$$ Since the first part of the equation has the form of a Leontief cost function. this form is also known as a generalized Leontief cost function.

What phenomenon is this cost function coming to describe? Is there an example of what this cost function represents?


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