Investment and quality of output in an economy with shortage

An attempt is made to solve a model of a socialist enterprise operating in a situation where shortage is possible. The shortage can manifest itself in the form of real shortages or in the supply of output at a quality lower than that which the firm is technically capable of achieving. The approach involves taking a restrictive view of the firm's goals under socialism. Expected profits are maximized by studying the behavior of profits and other variables as a function of the random variables. An explicit maximization is carried out using properties revealed by this process. Using a particular set of parameters to provide a basic solution for the model, further solutions are calculated to study the effect of changes in the basic data. The model can be developed in various ways to facilitate the study of other aspects of firms' investment behavior in a shortage economy.