Abstract

We analyze a competitive firm facing output price uncertainty in Yaari's dual theory of choice under risk. In Yaari's dual theory the preference functional is linear in profit but is compatible with risk aversion or risk inclination. We obtain a characterization of output and input decisions of firms which, unlike the von Neumann-Morgenstern theory of the firm, closely resembles that of the theory of the firm under certainty. We find intuitive comparative statics effects of increases in risk and risk aversion. We show how Hotelling's lemma can be applied to find the firm's output supply and input demand functions.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.