Optimal Capacity Adjustment by a Multiplant Firm: Knowledge, Technology, Human Capital
13 Pages Posted: 21 Jul 1999
Date Written: March 1999
Abstract
The paper studies the effect of scale economies on the optimal capacity adjustment of a multiplant firm. It is shown that with increasing economies of scale plants are ranked in decreasing order, after which the optimal choice is to scrap the largest one. On the contrary, if there are decreasing economies of scale the optimal policy would be to wait before abandoning intermediate plants. That is, decreasing economies of scale amplify the effect of uncertainty on disinvestment and tend to increase the plant's life.
JEL Classification: D92, L11
Suggested Citation: Suggested Citation
Moretto, Michele, Optimal Capacity Adjustment by a Multiplant Firm: Knowledge, Technology, Human Capital (March 1999). Available at SSRN: https://ssrn.com/abstract=159609 or http://dx.doi.org/10.2139/ssrn.159609
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