Monopolistic price setting and supply rigidities in a disequilibrium framework

A model of the firm with a delayed adjustment of prices and employment is analyzed. Prices and employment are determined under uncertainty about the location of the demand curve. Three models are distinguished: price setting with predetermined supply, employment determination with pre-determined prices, and a simultaneous price and employment determination. It is shown that many of the results of the deterministic case can be transfered to the stochastic set-up. The deterministic model is included as a special case. However, the model allows for supply rigidities and labour hoarding and permits the analysis of price adjustment.