Final answer:
Firms buy capital goods when they expect a higher return on investment, have sufficient funds, and are optimistic about profit prospects. The productive life of the capital good also plays a role in their decision.
Step-by-step explanation:
Firms often buy capital goods when they expect the investment to yield a higher return than other possible uses of their funds. This means that when firms believe that purchasing the capital goods will generate more profits in the future, they are more likely to buy them. It is also common for firms to buy capital goods when they have sufficient funds and can afford the purchase. Additionally, firms may choose to buy capital goods when they become more optimistic about current profit prospects.
For example, a manufacturing company may decide to purchase new machinery if they anticipate that it will increase their production capacity and efficiency, leading to higher profits. Similarly, a construction company may invest in new equipment if they expect that it will allow them to take on larger projects and generate more revenue.
The productive life of the capital good can also influence when firms buy them. If the capital good has a long productive life, firms may be more inclined to make the investment because they anticipate that it will provide benefits and generate profits over an extended period of time.