Service-Production under Uncertainty
AbstractThis essay presents a microeconomic model of a service-producing firm that faces an additively stochastic demand and has some price setting power in the market. The nature of the output implies that the firm sets its price and potential (instead of actual) output levels to maximize expected profits. It is shown that decisions in terms of potential output result in low employment variability. This explains, at least partially, the well established empirical fact that employment level volatility in service-producing industries is significantly lower than goods-producing industries.
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Bibliographic InfoArticle provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.
Volume (Year): 2 (1998)
Issue (Month): 1 (Summer)
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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