The Impact of Uncertainty upon the Multiproduct Firm

Abstract

Casual empiricism strongly suggests that businesses are predominantly of the multiproduct variety. This phenomenon has not escaped the attention of economists who have addressed the decision problem of such a firm in a variety of ways. The standard references to the long-run decision calculus of the multiproduct firm are Hicks [7] and Henderson and Quandt [6]. These classics were generalized to admit conditions of monopoly in the product market and/or monopsony in the factor market by Mauer and Naylor [10]. Pfouts [13] added another important contribution by considering the presence of fixed factors of production which could be transferred to different employments within the firm. Building upon the analysis contained in Pfouts [13], Dhrymes [4] considered a multiproduct monopolist facing random demand functions. Due to the complexities of that problem, Dhrymes found it convenient to assume that the monopolist had a concave and quadratic von Neumann-Morgenstern risk preference function.