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Using a general model of asset replacement, a replacement principle is derived which applies to both appreciating assets such as forests and depreciating assets such as equipment. The resulting replacement criterion provides a definition of opportunity costs appropriate for the replacement decision. The theory is presented graphically for the continuous time case, and two discrete-time examples are considered. Theoretical implications of changing discount rates and market forces are considered as they affect replacement policies.
American Journal of Agricultural Economics © 1972 Agricultural & Applied Economics Association