The economic explanation of the strategy of a self financing firm during the recession period

The models of Johansen, Nickell, and Leban and Lesourne examine the reaction of a firm during the recession period. The firm can regulate investment, recruitment and firing. The formulation and mathematical solution of the model is well known. We analyse the development of the price variables and the co-state variables. Using the results of Feichtinger and Hartl, and Van Hilten we describe the economic interpretation of the jump. Referring to Verheyen and Kort the conclusion is that the net present value rule (NPV) can explain the jump in the price variables of investment and recruitment and the moment of the postponement of the decisions. Therefore we formulate the NPV in the dynamic theory of the firm and we present a strategy during the recession period and a theoretical foundation of this rule of thumb, also usable in complicated situations.