Supply elasticities in the presence of adjustment costs

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

The adjustment-cost model of investment provides a rigorous basis for deriving a firm's price elasticity of supply over various lengths of run. Moreover, parameters of the adjustment-cost function itself play a prominent role in determining the size of the elasticity over the medium and long run. In this article we demonstrate how to derive supply elasticities from the optimization problem of a firm and argue that correct treatment of adjustment costs is essential to obtaining realistic behavior from general equilibrium models.

Original languageEnglish (US)
Pages (from-to)91-97
Number of pages7
JournalJournal of Policy Modeling
Volume15
Issue number1
DOIs
StatePublished - Feb 1993
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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