Abstract

RODRIGUEZ NAVA, Abigail  and  VENEGAS MARTINEZ, Francisco. Production Decisions of Firms under Uncertainty in Prices. Inv. Econ [online]. 2008, vol.67, n.265, pp.61-84. ISSN 0185-1667.

This paper develops several alternative models that explain the production decisions of a competitive firm when there is uncertainty in prices, with respect to either inputs or final goods. Three possibilities to describe firm behavior are distinguished: 1) models that maximize expected utility, 2) models that maximize the present value of expected earnings, and 3) models that incorporate financial titles under the existence of contingent claims markets. The comparative analysis of the above models is complemented with an optimization exercise when the real interest rate is stochastic and its dynamics is driven by a standardized Brownian motion, and a decision exercise of the firm through the choice of European financial options.

Keywords : firm theory; optimization under uncertainty; random prices.

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