In a Decision Concerning Replacing Equipment

question 50

Multiple Choice

In a decision concerning replacing equipment

• A)with new equipment, the book value of the old equipment can be considered an opportunity cost.
• B)or keeping it, the salvage value of the old equipment is a sunk cost in incremental analysis.
• C)with new equipment, old equipment which is not fully depreciated should always be replaced.
• D)any trade-in allowance or cash disposal value of existing assets is relevant to the decision to retain or replace equipment.

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Definitions:

Short Run

A period of time in which at least one input, typically capital, is fixed, and producers can only adjust the variable inputs like labor.

Long Run

A period in economics during which all inputs and operations can be varied, allowing for the adjustment to changes in market conditions or demand.

Very Long Run

In microeconomics, a period of time long enough that technology can change and firms can introduce new products.