SPECIFICATION OF THE PROFIT EQUATION AND EXPECTED PROFIT MAXIMIZATION

Proper specification of the profit equation where profits are stochastic requires that special care be given to specifying the profit equation so that it is consistent with the characteristics of the profit maximization problem, It is shown here that the relationship of cost curves with the production function is not,, in general, the same in tlie sto- _ chastic case as in elementary firm theory.\ It is also shown that although the "expected product price equals expected marginal cost" rule holds when expected marginal cost is interpreted as the expected marginal cost of planned production, the "expected input price equald -expected,marginal value product" rule for a planned input requires an adjustment for the increased cost of stochastic inputs.


Issue Date:
1980-07
Publication Type:
Conference Paper/ Presentation
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/278477
Language:
English
Total Pages:
8




 Record created 2018-10-18, last modified 2020-10-28

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