Econometrica: Oct 1961, Volume 29, Issue 4
Capacity Expansion and Probabilistic Growth
https://doi.org/0012-9682(196110)29:4<632:CEAPG>2.0.CO;2-K
p.
632-649
Alan S. Manne
This paper is concerned with the optimal degree of excess capacity to be built into a new facility such as a pipeline, a steel plant, or a superhighway. The problem is complicated by: (1) the presence of substantial economies of scale in plant construction; (2) the penalties involved in accumulating backlogs of unsatisfied demand; and (3) the use of a random-walk pattern rather than a deterministic upward trend in demand.Log In To View Full Content