We consider a firm that procures an input commodity to produce an output commodity to sell to the end retailer. Retailer's demand for the output commodity is negatively correlated with the price of the output commodity. The firm can sell the output commodity to the retailer either through a spot...

This research explores a firm's process investment decision to reduce its unit production cost in the presence of capital market frictions, prior to making a production decision. This investment depletes the firm's risk-free assets and creates two potentially counteracting effects: an...