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the time to shut down


Pham, TP and Bui, AT, the time to shut down, Economics Bulletin, 7, (14) pp. 1-14. ISSN 1545-2921 (2007) [Refereed Article]


At each time, a firm facing uncertainty over future market conditions have to make a decision whether they should continue to produce or stop the process? As the traditional principle the firm will go out of production when the price of the typical unit does not cover the average variable cost that it must incur to produce the typical unit. In reality the firm can suffer losses today; however it can get more gains tomorrow that is enough to make up the losses. It means that this rule seems not be suitable absolutely in an uncertainty enviornment. And it leads to a rule that the firm only stop producing if average variable costs of unit exceed the price of unit by a positive amount.This paper expects to find this exceeding amount and when a firm will stop producing. Under uncertainty, the price of unit and the average variables cost are assumed to follow a continuous time stochastic process. We wish to apply the optimal stopping time approach in order to solve it.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Applied economics
Research Field:Financial economics
Objective Division:Economic Framework
Objective Group:Microeconomics
Objective Field:Industry policy
UTAS Author:Pham, TP (Dr Phuong Pham)
ID Code:87172
Year Published:2007
Deposited By:Economics and Finance
Deposited On:2013-11-08
Last Modified:2013-11-08

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