[OPE-L:4086] Re: Depreciation -- S.O.S

john erns (ernst@pipeline.com)
Wed, 29 Jan 1997 08:59:27 -0800 (PST)

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I'm a bit unclear on this one.

1. I note that the "old machine" is completely depreciated.
2. There is no technical difference between the old machine
and the new machine except for age.
3. Why would the new machine be able to sell at a lower
price than the old, given the later is completely
4. Why would the capitalist with the old machine still owe
the bank, given the old machine is completely depreciated?


You wrote:

>B) Moral depreciation example
>Let us suppose a case in which one of the capitals, in the
>second period, has depreciated completely its old fixed
>capital. Then, this capital introduces another fixed
>capital which is cheaper (500f the older). The
>productivity of this machine is, however, the same. The
>modification involves only the price of the machine. So, we
>have a branch with an heterogeneous stock of fixed capital,
>in terms of its cost.
>In this situation the price of the final commodity goes
>down because the capital with the new machine charges less
>$ for its fixed capital. This would mean that the capital
>with the old machine must accept this new price and then is
>able to charge for its (old) fixed capital an amount lower
>than before. How is determined the "amount of
>depreciation"? As a sort of average between both capitals.
>(This is true if the relations between supply and demand in
>this branch remains the same.) It is obvious that this
>"average" will be lower than the precedent situation, so
>that the capital with the old machine can no longer cover
>the payments due to the bank. The amount it has to pay for
>the credit is higher than the amount of allowed
>depreciation. Bankrupcy could be in the future.