[OPE-L:4092] Re: Depreciation -- S.O.S

aramos@aramos.b (aramos@aramos.bo)
Wed, 29 Jan 1997 10:59:17 -0800 (PST)

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Previous message: Gerald Levy: "[OPE-L:4091] little lost lamb"


> 1. I note that the "old machine" is completely depreciated.

Let us suppose there are 2 capitals A and B in a branch. The
depreciation pattern is not equal, so that capital A
completely depreciated the machine in period 2 (from a
total of 3 periods). So, only the machine of capital A
is "completely depreciated" in period 2. The machine of
capital B is still "alive" one period more.

> 2. There is no technical difference between the old machine
> and the new machine except for age.

The new machine capital A purchases to replace the old
one is exactly equal, but its cost is only 50%.

> 3. Why would the new machine be able to sell at a lower
> price than the old, given the later is completely
> depreciated?

I am not sure to understand.

Capitalist A replace his/her machine at a lower price. Why?
I do not know. Perhaps, before, it was made in Pittsburgh
and, now, is imported from Costa Rica where wages are 50%
from those prevailing in Pittsburgh.

The fact is after this period, capitalist A is able to sell
his/her commodity at a lower price because s/he charges
less on account of fixed capital.

This affects capitalist B, who is forced to reduce his/her
selling price. This means that the amount that capitalist B
is allowed to charge for depreciation is forcefully
reduced. This would be a "moral depreciation" of his/her
fixed capital.

Notwithstanding this, capitalist B still owes to the bank
the amount corresponding to the "annualy amount of
depreciation", prevailing before capitalist A replaces
his/her machine.

The amount charged for deprecition in the whole branch
cannot be neither that corresponding to capital A nor that
corresponding to capital B. It should be an "average" of
both, assuming that supply = demand.

> 4. Why would the capitalist with the old machine still owe
> the bank, given the old machine is completely depreciated?

Only capitalist B still owes to the bank because s/he has
not completely depreciated his/her old machine.

Capitalist A could also borrow to purchase the new machine,
but the amount annualy paid will be 50% than the precedent

Alejandro Ramos M.