Quarterly Journal of Economics Vol. 96 No. 3 1981
A Dynamic Model of Investment and Capacity Utilization
Abstract
This paper develops a dynamic optimizing model of a firm with quasi-fixed factors subject to adjustment costs. The utilization rates of the quasi-fixed factors are chosen optimally by the firm, and the rates of investment in the quasi-fixed factors are based on the shadow prices of these factors, in the spirit of Tobin's q theory of investment. Capital investment is shown to be negatively related to capital utilization along the path to the steady state; however, in response to unanticipated demand shocks, capital utilization and investment are positively related.
- DOI
- 10.2307/1882679
- Volume
- 96
- Issue
- 3
- Pages
- 379
- Sources
- openalex crossref