The theory of the firm under demand uncertainty has to date assumed that the firm's input decisions are unaffected by the stochastic nature of demand.' This assumption is not usually made explicitly, but it is implied by the assumption that the firm's cost function, presumably derived by finding the minimum cost combination of inputs for any given level of output, is unaffected by the uncertainty. However, if firms must choose some of their inputs before the uncertainty regarding demand is resolved, then different input decisions may involve different levels of risk. Since firms' decisions regarding price and output are affected by demand uncertainty and non-linear risk preferences, as previous authors have shown, it seems reasonable to suspect that their input decisions will also be affected. But if input decisions are affected, then firms' cost functions are not invariant to uncertainty, and the results of previous studies must be reexamined. Three different types of firms are considered in this paper: the competitive firm, the quantity-setting imperfect competitor, and the price-setting imperfect competitor. Input decisions of the competitive firm and the quantity-setting imperfect competitor are shown to be unaffected by demand uncertainty, and hence the assumption of an unchanging cost function is appropriate in these cases. For the price-setting imperfect competitor, however, input decisions are influenced by demand uncertainty, and an unchanging cost function is therefore not appropriate. This case is considered in some detail, and conditions under which results can differ from those previously reported in the literature are examined.
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