Risky production with ex-ante prices under monopoly: analytical and simulation results

A production model which treats price and production as ex-ante variables as proposed by Karlin and Carr is analyzed to derive a determinate output volume effect given conditions of constant price elasticity of certainty demand and a uniform probability distribution. Simulation techniques are used to extend the impact of demand uncertainty on ouptut and price. The study supports Karlin and Carr's proposal that optimal price is higher than certainty price when demand is not price-elastic.