IDEAS home Printed from
   My bibliography  Save this article

The Capacity Decision When Product Demand is Uncertain: A Timing Problem Approach


  • Jannett Highfill

    (Bradley University)

  • David Quigg

    (Bradley University)

  • Edward Sattler

    (Bradley University)

  • Robert Scott

    (Bradley University)


Suppose a firm faces a “timing problem” in its capacity decision: it must acquire capacity, a strict upper bound on production, and set its price before quantity demanded for its product is known. The paper shows that the uncertainty capacity is greater than the certainty capacity when the marginal cost of capacity is low; the reverse holds for high marginal costs. Although there is a systematic relationship between the certainty and uncertainty prices, such differences are small. Therefore, our results suggest that the primary effect of demand uncertainty is on the firm's optimal capacity, rather than on its optimal price.

Suggested Citation

  • Jannett Highfill & David Quigg & Edward Sattler & Robert Scott, 2000. "The Capacity Decision When Product Demand is Uncertain: A Timing Problem Approach," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 26(1), pages 71-85.
  • Handle: RePEc:mve:journl:v:26:y:2000:i:1:p:71-85

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mve:journl:v:26:y:2000:i:1:p:71-85. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ken Brown). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.