The optimal behaviour of firms facing stochastic costs
AbstractThis paper aims at assessing the optimal behavior of a firm facing stochastic costs of production. In an imperfectly competitive setting, we evaluate to what extent a firm may decide to locate part of its production in other markets different from which it is actually settled. This decision is taken in a stochastic environment. Portfolio theory is used to derive the optimal solution for the intertemporal profit maximization problem. In such a framework, splitting production between different locations may be optimal when a firm is able to charge different prices in the different local markets.
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Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 640.05.
Date of creation: 03 Feb 2005
Date of revision:
Firm behaviour; Portfolio theory; Risk aversion; Uncertainty.;
Other versions of this item:
- Francesco Menoncin & Rosella Nicolini, 2005. "The optimal behaviour of firms facing stochastic costs," Working Papers 161, Barcelona Graduate School of Economics.
- Francesco Menoncin & Rosella Nicolini, 2005. "The optimal behaviour of firms facing stochastic costs," Working Papers ubs0501, University of Brescia, Department of Economics.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-FIN-2005-02-13 (Finance)
- NEP-MIC-2005-02-13 (Microeconomics)
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