Capacity Choice in a Two-Stage Problem Under Uncertainty

Hennessy, David A.

Economics Letters Vol. 65 (November 1999): 177-182.

When choosing production capacity, a firm may not know which among mutually exclusive projects will be most profitable. It may be possible to await more information before committing given capacity to a project. We identify when shifts in project profitability and firm pecking order increase ex ante optimal capacity choice.

Published Version