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Specification Of The Profit Equation And Expected Profit Maximization

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  • Selley, Roger

Abstract

Proper specification of the profit equation where profits are stochastic requires that special care be given to specifying the profit equation so that it is consistent with the characteristics of the profit maximization problem, It is shown here that the relationship of cost curves with the production function is not,, in general, the same in tlie sto- _ chastic case as in elementary firm theory.\ It is also shown that although the "expected product price equals expected marginal cost" rule holds when expected marginal cost is interpreted as the expected marginal cost of planned production, the "expected input price equald -expected,marginal value product" rule for a planned input requires an adjustment for the increased cost of stochastic inputs.

Suggested Citation

  • Selley, Roger, 1980. "Specification Of The Profit Equation And Expected Profit Maximization," 1980 Annual Meeting, July 27-30, Urbana-Champaign, Illinois 278477, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea80:278477
    DOI: 10.22004/ag.econ.278477
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    Keywords

    Agricultural Finance;

    Statistics

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