Service-Production under Uncertainty

John Roufagalas
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John Roufagalas: Department of Economics, Radford University, U.S.A.

Ekonomia, 1998, vol. 2, issue 1, 90-105

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.

JEL-codes: D21 D42 D80 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:ekn:ekonom:v:2:y:1998:i:1:p:90-105

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