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Explain with a graph why when there is a constant return on capital over time, technology...

Explain with a graph why when there is a constant return on capital over time, technology cause capital investment?

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Answer #1

Technological advances impact a firm'sinvestment decision, as they affect theinvestment cost.

They can also affect the profitability due to demand shocks.

Whentechnological advances impact future earnings we find important long-term effects: theinvestment threshold increases, whereas the option value decreases.

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