Suppose that I currently not able to purchase new capital or build a new building but I expect a new technological innovation to occur that will improve capital productivity in the coming year, Taking into account wages, rental rates, and productivity, how would I change my behavior both now and in the next year?
Capital productivity characterises the efficiency within which the fixed capital assets will be used.
As the new technological innovation will lead to higher capital productivity in the coming year there is no need to purchase new capital or build a new building in the current year.
So since no new building is going to be made in this year the wages decreases but the rental rates remains the same or increases as the business may be running on a rented building.The productivity for the current year may not increase as no new improvements are made but the productivity in the following year will definitely increase as there is a new technological innovation coming up.
Therefore it is better to wait for one year and enjoy the benefits of technological innovation rather than purchasing capital or build a new building which cannot be matched with the benefits of new technology innovation.
Suppose that I currently not able to purchase new capital or build a new building but...