TY  - JOUR
AU  - Abel,Andrew B.
AU  - Eberly,Janice C.
TI  - The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6148
PY  - 1997
Y2  - August 1997
UR  - http://www.nber.org/papers/w6148
L1  - http://www.nber.org/papers/w6148.pdf
N1  - Author contact info:
Andrew B. Abel
Wharton School
University of Pennsylvania
2315 Steinberg Hall - Dietrich Hall
Philadelphia, PA  19104-6367
Tel: 215/898-4801
Fax: 215/573-7244
E-Mail: abel@wharton.upenn.edu

Janice C. Eberly
Northwestern University
Department of Finance
Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/467-1840
Fax: 847/491-5719
E-Mail: eberly@kellogg.northwestern.edu
AB  - When factors of production can be adjusted costlessly, the mix of factors can be considered separately from their scale.  We examine factor choice and utilization when investment is irreversible and subject to a fixed cost, so that the capital stock is a quasi-fixed factor that is adjusted infrequently and by discrete amounts.  We derive and analyze analytic approximations for optimal investment behavior, and show how the quasi-fixity of capital eliminates the dichotomy between factor mix and scale.   We show that the quasi-fixity of capital can give rise to labor hoarding, even when labor is a purely flexible factor.
ER  -