Investment Under Uncertainty with Stochastically Switching Profit Streams: Entry and Exit over the Business Cycle

Edward Driffill (), Marzia Raybaudi and Martin Sola

Studies in Nonlinear Dynamics & Econometrics, 2003, vol. 7, issue 1, 40

Abstract: We study how entry and exit decisions of a monopolist are affected by business cycle conditions. We model the business cycle as a two-state Markov process, and assume that the demand curve faced by the monopolist evolves differently in the two states of the economy. We explore conditions under which the monopolist would enter or exit, either in a boom or a recession.

Date: 2003
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DOI: 10.2202/1558-3708.1131

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