Stationary dual prices and depreciation

This paper models a machine replacement and capacity expansion problem as an infinite-horizon linear program. We establish a strong duality result and show that stationary dual prices are optimal, regardless of initial conditions. These prices measure the economic value of owning vintage machinery and thus define depreciation schedules. We present necessary and sufficient conditions for straight-line depreciation.This work was partially supported by grants ECS-8312008 and ECS-8619732 from the National Science Foundation.