[OPE-L:3019] Re: Straight and Moral

John Ernst (ernst@nyc.pipeline.com)
Sat, 14 Sep 1996 09:05:14 -0700 (PDT)

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Am I wrong in assuming that the method you
refer to as "standard" assumes that the price
of the output is constant over the 10 periods?


On Sep 14, 1996 08:42:32, 'Duncan K Foley <dkf2@columbia.edu>' wrote:

>On Sat, 14 Sep 1996, John Ernst wrote:
>(among other things)
>> Let's say that a capitalist buys a machine
>> that costs $800, C, to produce 1000 units of
>> the commodity, Q. To produce with that machine,
>> he must invest $100 in raw and auxiliary
>> materials, c, and $100 in variable capital,
>> v. If the machine is predicted to
>> last 10 periods, then in each period he
>> withdraws $80, y, from the output
>> should he choose to depreciate the
>> machine via straight line depreciation.
>> This means that his invested capital
>> decreases by that amount, again y,
>> after production in each period. If
>> the rate of profit is assumed
>> constant, say, 15%, this means that the
>> amount of profit he anticipates over the
>> life of the machine decreases by 150f $80 or
>> $12 each period.
>This actually isn't the standard method of calculating the rate of profit
>in this type of situation. The more common method would be to regard the
>machine as an investment involving the outlay of $800 in the initial
>period, and returning the cash flow over the ten periods of its useful
>existence. You have to specify the price of output and then you can find
>the profit: the cash flow would be the sum of the depreciation ($80 per
>period in your example) and the profit (unspecified in your example). The
>rate of return that would equate the discounted present value of the cash
>flow to the initial outlay would be the relevant rate of profit on the
>machine (which might depend quite a lot on what you assume about the path
>of the price of the output).