Assume good X is produced in a monopolistically competitive market. In addition, each of the firms in the industry uses essentially the same technology. Competitors distinguish their individual products primarily through persuasive advertising
Assume that one of the firms in the market discovers a new production process that substantially reduces the average costs of production. Analyze the effects of this discovery on long-run equilibrium in the market.
A reduction in average costs amounts to a downward shift of the ATC curve. Thus, in the short run, the innovative firm will be able to earn positive economic profits. However, over time, other firms will seek to copy or otherwise compete with the new production technology in order to avoid losing market share to the innovator. Overall, the average long-run price in the market will tend to fall. Long-run output will be likely to increase as price falls and firms move down their respective demand curves.
You might also like to view...
Which of the following statements about the concept of opportunity cost is true?
A. The opportunity cost of a decision only includes monetary outlays. B. The opportunity cost of a decision is the next best foregone alternative. C. All decisions have zero opportunity cost. D. The opportunity cost of a college education is measured by the payments for tuition and books.
From an economist's perspective, why are public restrooms often dirtier than restrooms in your home?
A. Restrooms in your house are easier to clean. B. Property rights give you an incentive to clean your restrooms. C. There are incentives like a salary for janitors to clean the public restrooms. D. More people use the public restrooms.
An adverse supply shock shifts the production function curve ________ and the labor demand curve ________
A) upward, upward B) upward, downward C) downward, upward D) downward, downward
YearFootballs(in millions)PÂ FootballsBooks(in millions)PÂ BooksNominal GDPReal GDP2000 Base Yr55464949200165465454200276577765200347788462Assume the table has recorded the total output and prices of the only two goods produced. Looking at the changes in real GDP and nominal GDP from 2001 to 2002, we can conclude:
A. output increased, but prices decreased. B. only output increased. C. only prices increased. D. output and prices increased.