This paper considers a monopolistic firm in an inflationary environment. The firm incurs a fixed cost when it adjusts its nominal price, and the paper examines how cyclical fluctuations and a growth trend in demand affect the firm's price-adjustment policy and profits. The main results are that the more cyclical demand is, the higher is the initial real price and the lower is the certainty-equivalent terminal real price within a period with constant nominal price. If the certainty-equivalent inflation rate is positive (negative), then the higher the growth of the expected demand, the higher (lower) are the initial real price and the certainty-equivalent terminal real price within a period with constant nominal price.
ASJC Scopus subject areas
- Economics and Econometrics
- Political Science and International Relations