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Capacity Expansion with Facilities Under Technological Improvement

Author

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  • Hirohide Hinomoto

    (University of Illinois, Urbana)

Abstract

Practically all existing analyses covering the obsolescence or the improvement of productive facilities are concerned with equipment replacement. An extension of such considerations to general capital investment analysis would seem to be a natural development. The present analysis is related to an investment decision on the expansion of productive capacity in discrete steps with facilities which undergo technological improvement. First, the analysis for expansion in one step is developed after the effects of technological improvement on the price and operating cost of a future facility have been introduced. The discussion of one-step expansion is then extended to an N-step expansion. In both types of expansion, the necessary conditions for optimum values of investment decision variables are obtained in order to maximize the present value of the net profit over the planning period.

Suggested Citation

  • Hirohide Hinomoto, 1965. "Capacity Expansion with Facilities Under Technological Improvement," Management Science, INFORMS, vol. 11(5), pages 581-592, March.
    • Handle: RePEc:inm:ormnsc:v:11:y:1965:i:5:p:581-592
    DOI: 10.1287/mnsc.11.5.581
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    Cited by:

    1. Richard Jensen, 1979. "Adoption and Diffusion of an Innovation Under Uncertain Profitablilty," Discussion Papers 410, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Rahman, Atiqur & Loulou, Richard, 2001. "Technology acquisition with technological progress: effects of expectations, rivalry and uncertainty," European Journal of Operational Research, Elsevier, vol. 129(1), pages 159-185, February.
    3. van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, vol. 27(3), pages 235-247, October.
    4. Pulak Mishra & Neha Jaiswal, 2017. "Impact of Mergers and Acquisitions on Firms’ Export Competitiveness," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(1), pages 1-20, March.
    5. Morton I. Kamien & Nancy L. Schwartz, 1972. "Some Economic Consequences Of Anticipating Technical Advance," Economic Inquiry, Western Economic Association International, vol. 10(2), pages 123-138, June.
    6. Rakesh Basant & Pulak Mishra, 2019. "Impact of Vertical Integration on Market Power in Indian Manufacturing Sector During the Post-Reform Period," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 561-581, December.
    7. Basant, Rakesh & Mishra, Pulak, 2017. "Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period," IIMA Working Papers WP 2017-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    8. Richard A. Jensen, 1980. "A Duopoly Model of the Adoption of an Innovation of Uncertainty Profitability," Discussion Papers 434, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Cheryl Gaimon, 1994. "Subcontracting versus capacity expansion and the impact on pricing of services," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(7), pages 875-892, December.

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