Optimal Bounded Investment Behaviour

We study the investment behaviour of a producer maximizing the present value of his firm over an infinite time horizon and having investments bounded below by zero (irreversibility of capital) and bounded above by his current profit (capital market imperfections). In our model the interest rate, the wage and the price of the unique good, which serves also as capital, are assumed known and held fixed. We find the optimal investment behaviour in the form of a feed-back function depending on the current capital level. We also present some numerical simulations illustrating the effects from changes in each of the problems parameters