1.1. Scope of the Book This book is a contribution to the area of
"dynamic models of the firm." The motivation for this kind of
research is the following: Empirical studies (e.g. Albach (1976))
have shown that the development of the firm over time can be
divided into different stages. such as growth. stationarity and
contraction. In order to understand and evaluate these stages in a
proper way. it is important to develop a suitable theoretical
framework. To that end. economists have applied dynamic
mathematical techniques. such as optimal control theory. calculus
of variations and dynamic programming to design and analyse dynamic
models of the firm. In this way. the economic theory of the firm is
extended to a dynamic context. Within the field of the dynamics of
the firm this book - develops a general investment decision rule.
based on the concept "net present value of marginal investment."
which is applicable in deterministic dynamic models of the firm; -
studies the influence of adjustment costs of investment on optimal
dynamic firm behavior; - extends the stochastic dynamic theory of
the firm by connecting it with a dynamic version of the Capital
Asset Pricing Model. Before elaborating on "the dynamics of the
firm." we first review the subject of net present value in the
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