"When a Company's Depreciation Is Larger Than Its Gross Investment

question 18

Essay

"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.

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Definitions:

Substitution

The process of replacing one good or service with another, often due to changes in relative prices, quality, or availability.

Marginal Rate

A measure of the change in a variable (often cost, revenue, or profit) as it relates to a unit change in another variable.

Substitution

The economic principle describing how consumers or producers switch between goods or resources as relative prices or availability change.

Quart

A unit of liquid volume equal to two pints, approximately 0.946 liters in the United States.