A technological advance that reduces firms' variable costs will lead to higher profits in the long run of a perfectly competitive industry.

Question

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In a perfectly competitive industry, technological advances that reduce variable costs will initially increase profits for innovating firms. However, in the long run, the entry of new firms attracted by these higher profits and the adoption of the new technology across the industry will drive prices down to the level of the new, lower costs. This process continues until economic profits are eliminated, and firms earn only a normal profit.

A Technological Advance That Reduces Firms' Variable Costs Will Lead