Investment Dynamics and Capacity Utilization under Monopolistic Competition

Omar Licandro ()

Annals of Economics and Statistics, 1992, issue 27, 91-113

Abstract: In the tradition of Tobin's q models, the influence on investment of demand uncertainty and capacity constraints is analyzed in a monopolistically competitive economy. Under these conditions, the degree of capacity utilization has a positive effect on the markup rate and explains the difference between average q and marginal q. In the aggregate economy, when the representative firm faces only specific demand uncertainty, it is shown that the degree of capacity utilization is strictly smaller than one at steady state. Expected changes in aggregate demand or in demand price elasticity are shown to accelerate the accumulation process.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:1992:i:27:p:91-113

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