The Dynamic Competitive Firm under Spot Price Uncertainty

John Hey

The Manchester School of Economic & Social Studies, 1987, vol. 55, issue 1, 1-12

Abstract: The main result of this paper is that the classic "marginal cost equals price " condition for the output of the perfectly competitive firm in a one-period certain world carries over to a many-period uncertain world if the firm is allowed to hold inventories and if there exists a forward market for the firm's product. This implies the separation of the firm's output decision from its sales decision, and the separation of the firm's output decisions in different periods. Furthermore, output is unaffected by the uncertainty and the firm's attitude to it, though the sales decisions do depend on these factors. Copyright 1987 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1987
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