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Price and Quantity Decisions of a Firm Facing Uncertainty in the Input and Output Markets

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  • Chin Lim

Abstract

This paper examines firm behaviour when the firm faces uncertainty in both its demand and cost conditions. We consider quantity behavior (Q) where the firm sets quantity ex ante and adjusts price ex post; price behavior (P) where the firm sets price ex ante and adjusts quantity ex post; and the case where the firm sets price and quantity ex ante (P/Q). For increasing marginal cost firms, Q is preferred to P and P/Q behavior, but preference between the latter two behavioural modes is ambiguous. More information is required to operate Q behavior compared to price setting behavior - the extreme, an intentional Q behavior could collapse into an unintentional P/Q behavior.

Suggested Citation

  • Chin Lim, 1976. "Price and Quantity Decisions of a Firm Facing Uncertainty in the Input and Output Markets," Working Paper 244, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:244
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