"When a company's depreciation is larger than its gross investment, net investment becomes negative and the firm's capital stock decreases." Is the previous statement correct or incorrect? Explain your answer
What will be an ideal response?
The statement is correct. Net investment equals gross investment minus depreciation. If depreciation is larger than gross investment, net investment will be negative. Net investment is the change in the capital stock, and so the company's capital stock decreases. Essentially, because depreciation is larger than the company's gross investment, the company is not buying enough capital to replace the capital that depreciated. As a result, the total amount of the company's capital decreases.
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What does the long-run average cost curve show?
A) the interaction between average fixed cost and marginal cost B) the lowest average cost to produce each output level in the long run C) the distinction between long-run fixed and long-run variable costs D) the lowest average marginal cost of producing each output level at any time E) Answers A, B, and C are correct.
When Mother Teresa used her $190,000 Nobel Peace Prize to construct a leprosarium, she was
A) behaving irrationally. B) behaving selfishly. C) not behaving in a truly voluntary way. D) pursuing her self interest. E) violating the fundamental laws of economics.