ABSTRACT
The policy function has been perceived to be continuous. It demonstrate the possibility of a discontinuous policy function. The key factor is to introduce adjustment costs with capital size effects, whereby the growth rate of capital is the source of adjustment costs. Interestingly, recent work by Feichtinger et al. provides a very simple investment model of this type. One can solve a firm's dynamic investment decision problem under conditions where multiple steady states and a discontinuous investment strategy may also arise. The study of global dynamic properties of such a model and pursue a numerical detection of the threshold. The most important economic implication of the multiple steady states is that it has the property of history dependence. The history dependence arises if solution paths converge toward distinct attractors depending on the initial conditions. The existence of two or more stable steady states implies the existence of thresholds.
