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Interrelated Factor Demand with Nonconvex Adjustment Costs: a Note

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Author Info
Letterie, Wilko
Nilsen, Øivind A.
Pfann, Gerard (METEOR)

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Abstract

In this paper we develop a model to describe a firm’s demand for two production factors which is subject to the presence of nonconvex adjustment costs. In our model simultaneous adjustment of these two production factors may either increase or decrease the total costs incurred by the firm. The magnitude of this change in total costs ultimately determines the likelihood of joint adjustment. We also show that the importance of interrelation is suppressed by large fixed costs.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 002.

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Date of creation: 2008
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Handle: RePEc:dgr:umamet:2008002

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Keywords: Economics (Jel: A);

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dixit, Avinash, 1997. "Investment and Employment Dynamics in the Short Run and the Long Run," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 1-20, January. [Downloadable!] (restricted)
  2. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Letterie, Wilko A. & Pfann, Gerard A. & Polder, J. Michael, 2004. "Factor adjustment spikes and interrelation: an empirical investigation," Economics Letters, Elsevier, vol. 85(2), pages 145-150, November. [Downloadable!] (restricted)
  4. Sakellaris, Plutarchos, 2004. "Patterns of plant adjustment," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 425-450, March. [Downloadable!] (restricted)
  5. Plutarchos Sakellaris, 2001. "Patterns of plant adjustment," Finance and Economics Discussion Series 2001-05, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December. [Downloadable!] (restricted)
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  7. Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(2), pages 345-387, August. [Downloadable!] (restricted)
  8. Nadiri, M Ishaq & Rosen, Sherwin, 1969. "Interrelated Factor Demand Functions," American Economic Review, American Economic Association, vol. 59(4), pages 457-71, Part I Se. [Downloadable!] (restricted)
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