ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

This means that its possible for time

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Unformatted text preview: as ) but a priori ( ̇ ) () () (̇ ) () ), ( ) or stays constant (some people write ( ) to rise, fall, or stay constant over . This means that it’s possible for time. __________________________________________________________________________ _______________________ Example: A company buys capital for $100m with a useful life of 4 years. The salvage value is estimated to be $0 and the company wants to use the straight line depreciation method. The opportunity cost rate of return is estimated to be always 10% of the value of capital in the beginning of the period. Then: () () () ( ){ () () () () } () { ( ( } ) ( ) ) This yields: 6 Note to self: for next version come up with a better formula 17 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. Time 0 1 2 3 4 Period Period 1 Period 3 Depreciation over period Value at time Opportunity cost rate of return at time 0.1 0.1 0.1 0.1 0.1 25 Period 2 25 25 Period 4 25 Price of Owned Capital at time ( ) () () () () () () _____________________________________________________________________...
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