Competitive Firm Behavior With Simultaneous Price And Output Uncertainty

Topics:
Organization
Tags:
Uncertainty
Source:
Northern Illinois University

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Overview: While a competitive firm facing price uncertainty has been extensively studied, this is not so for output uncertainty. This paper analyzes the behavior of a competitive firm facing multiplicative output uncertainty, either with or without price uncertainty. The equilibrium was depicted and comparative static's results were obtained with the aid of a diagram which exploits the properties of a covariance term present in the first order conditions. Firstly the results were derived based on the Arrow-Pratt coefficients of risk aversion, and then supplemented with the Ross measure of relative risk aversion, since this proves useful in the presence of multiple sources of uncertainty.

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Format: PDF | Size: 185KB | Date: Feb 2003 | Pages: 9

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