If a price-taking firm that belongs to an industry in long-run equilibrium discovers a significant cost-saving technology,then
A) all firms will enjoy positive economic profit for a short period of time.
B) the rest of the industry will quickly adopt the new technology.
C) the firm will enjoy positive economic profit forever.
D) the firm will lower the price to drive the rest of the industry out of business.
E) the firm will not implement the new technology,fearing a price war with the rest of the industry.

Question

Quizplus · Accepted Answer

If a price-taking firm discovers a significant cost-saving technology, it will be able to produce at a lower cost and therefore, will be able to lower its price and increase its output. This will result in higher profits for the firm. However, as other firms in the industry observe the increase in profits and the lower prices, they will also adopt the new technology. This will cause the industry supply curve to shift down, resulting in lower prices for all firms in the industry. Therefore, while the firm may enjoy a short period of higher profits, in the long run, all firms in the industry will benefit from the lower costs and prices.

If a Price-Taking Firm That Belongs to an Industry in Long-Run