A Stochastic Theory of the Firm

We present a stochastic model of make-to-stock firms based on a buffer flow system with jumps. The cumulative production and the cumulative demand are governed by two Poisson counting processes with random intensities parameterized by production capacity and price respectively. Optimal operating and...

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Bibliographic Details
Published in:Mathematics of operations research 1988-08, Vol.13 (3), p.447-466
Main Author: Li, Lode
Format: Article
Language:English
Subjects:
Applied sciences
Capital costs
Demand
Economic models
Economic theory
Economic uncertainty
Exact sciences and technology
Firm modelling
Marginal costs
Mathematical analysis
Mathematical functions
Monopolies
Monopoly
Operational research and scientific management
Operational research. Management science
Optimal
Price elasticity
prices
Pricing policies
Production
Production costs
production variability
stochastic demand
Stochastic models
theory of the firm
Unit costs
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Description
Summary:We present a stochastic model of make-to-stock firms based on a buffer flow system with jumps. The cumulative production and the cumulative demand are governed by two Poisson counting processes with random intensities parameterized by production capacity and price respectively. Optimal operating and pricing policies (short-run decisions) and optimal capacity (long-run) decisions are explored by application of a two-stage optimization device. Detailed computations regarding the Poisson buffer flow system and a variation on the basic model with learning effects are also presented.
ISSN:0364-765X
1526-5471
DOI:10.1287/moor.13.3.447