ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

For example the following graph shows the value of

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Unformatted text preview: e end of its useful life)? In that case: () ⏟ () Earlier we showed that: () But since () () we have: () () () Let’s check if this formula is correct: at we have ( ) () ( ){ } () () ( ){ we have ( ) { } ( ){ () () } () } () ( ) which is correct; at ( ) which is also right since we assumed the salvage value was ( ). For example, the following graph shows the value of capital over time given that it was purchased for $500m, has a useful life of 10 years, and salvage value of $50m, and straight line depreciation: 11 ECO 204 Chapter 12: a Firm’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. & Straight line depreciation () 4. Calculating ( ) and ( ) in terms of parameters by the Declining Balance Depreciation Method In the declining balance depreciation method, ( ) the depreciation cost in each period is a constant proportion of the value of capital at the beginning of the period. In the simplest declining depreciation method this constant proportion is of ( ) and the salvage value is determined endogenously (not given exogenously -- see below for an explanation). In this declining balance method: () ( ⏟ ) ( ) Unlike straight line depreciation, here ( ) is a function of time. Now: () But ( ) ( ( ) () ) so that: () ( ) () ){ ( ( ) ) ( ) ( )( ) Now by recursive substitution: (...
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This document was uploaded on 01/19/2014.

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