Entry and Exit Decisions under Uncertainty

摘要: A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm an active viewed as assets that call options on each other. The solution is pair of trigger prices for exit. exceeds variable cost plus interest cost, less than minus cost. These gaps produce "hysteresis." Numerical solutions obtained several parameter values; hysteresis found to be significant even with small sunk costs.