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Define and explain economic depreciation for a Hotelling competitive industry

Define and explain economic depreciation for a Hotelling competitive industry

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Hotelling defines depreciation in context of competitive market as a rate of decease in the value of a machine that is used in the process of production. This depreciation is allowed because the owner is willing to maximize the present value of the output which is then subtracted for the operating cost of the machine. It thus becomes the wear and tear of that machine with time as it used more and more. This rate of fall in the value is defined as depreciation.

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