The optimal behaviour of firms facing stochastic costs

Francesco Menoncin () and Rosella Nicolini

No 161, Working Papers from Barcelona School of Economics

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: Risk Aversion; Firm behaviour; portfolio theory; uncertainity (search for similar items in EconPapers)
JEL-codes: C61 D21 D81 G11 (search for similar items in EconPapers)
Date: 2015-09
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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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