Theoretical framework

A firm’s behavior in case of outages

While studying the firm’s behavior in the presence of regular and constant outages we assume the firm operates in a competitive atmosphere while pursuing its major objective of profit maximization considering the size of the firm. Following can be the possible consequences:

• In case if power outages are considered to be somehow everlasting in nature then the optimal size of the firm is lower than in the absence of outages. Henceforth we see the possibility of the firm to let go some labor.
• The chance of the firm to make some appropriate adjustments to pull through some of the output which was lost depends on the following characteristics.

1. The degree of the market situation to be favorable towards the firm
2. If the firm’s dependency of the production process is less on electricity then it is more likely that the firm will make an adjustment.
3. If the cost of adjustment is low the firm is most likely to go for it.
4. The firm will undertake an adjustment if the power outages are large and are expected to be continued for a long period of time.

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