The firm's investment and employment policy through a business cycle

The paper studies with the help of a model the investment and employment policy through a business cycle for a firm which maximizes its discounted income and assumes that the forecasts are perfectly correct. In addition to investment and wages costs, the firm has to bear recruitment and firing costs; it has at its disposal four control variables: the selling price, the recruitment rate, the firing rate and the investment rate. The firm's strategy appears to be generally a sequence of elementary policies. This sequence highly depends on the relative values of parameters like the rate of depreciation of equipment, the natural rate of decrease of employment, the ratio of the unit recruitment and firing cost with respect to the wage rate, the rate of decrease of demand during recession. The results obtained are, on the whole, quite consistent with the behaviours which have been observed in the last years, and explain some of the features of recessions.