The optimal behaviour of firms facing stochastic costs

Rosella Nicolini and Francesco Menoncin ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper aims at assessing the optimal behavior of a firm facing stochastic costs of production. In an imperfectly competitive setting, we evaluate to what extent a firm may decide to locate part of its production in other markets different from which it is actually settled. This decision is taken in a stochastic environment. Portfolio theory is used to derive the optimal solution for the intertemporal profit maximization problem. In such a framework, splitting production between different locations may be optimal when a firm is able to charge different prices in the different local markets.

Keywords: Firm behaviour; Portfolio theory; Risk aversion; Uncertainty. (search for similar items in EconPapers)
JEL-codes: C61 D21 D81 G11 (search for similar items in EconPapers)
Pages: 26
Date: 2005-02-03
New Economics Papers: this item is included in nep-fin and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The optimal behaviour of firms facing stochastic costs (2005)
Working Paper: The optimal behaviour of firms facing stochastic costs (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:640.05

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