Interrelated factor demand with nonconvex adjustment costs
Working paper
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Date
2008-04Metadata
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- Discussion papers (SAM) [663]
Abstract
In this paper we develop a model to describe a firm’s demand for two production factors which is
subject to the presence of nonconvex adjustment costs. In our model simultaneous adjustment of
these two production factors may either increase or decrease the total costs incurred by the firm.
The magnitude of this change in total costs ultimately determines the likelihood of joint adjustment.
We also show that the importance of interrelation is suppressed by large fixed costs.
Publisher
Norwegian School of Economics and Business Administration. Department of EconomicsSeries
Discussion paper2008:7