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Service-Production under Uncertainty

Author

Listed:
  • John Roufagalas

    (Department of Economics, Radford University, U.S.A.)

Abstract

This 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.

Suggested Citation

  • John Roufagalas, 1998. "Service-Production under Uncertainty," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 2(1), pages 90-105, Summer.
  • Handle: RePEc:ekn:ekonom:v:2:y:1998:i:1:p:90-105
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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