The competitive firm and the role of information about uncertain factor prices |
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Authors: | Christian Hermelingmeier |
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Affiliation: | Department of Economics and Institute of Mathematical Economics, Bielefeld University, P.O. Box 100131, 33615 Bielefeld, Germany |
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Abstract: | This paper studies the role of information about uncertain input prices for a competitive firm. The production decision has to be taken when the price of an input factor is perceived as random. However, a signal is observable in advance, conveying some information about the future factor price. Transparency is linked to the informational content of this signal. The impact of a higher level of transparency is analyzed from an ex ante perspective, i.e. before the information signal is observed. The change of factor use, production amount and cost are determined by comparing the strength of the curvatures of total and marginal product. By contrast, ex ante profit always increases, independently of the shape of the production function. |
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Keywords: | D21 D80 |
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