Cost-saving developments,e.g. ,a new production procedure that saves two steps,introduced by a price-taking firm in a competitive market lead to
A) entry by new firms.
B) positive economic profit for new firms.
C) positive economic profit for a few firms for a short time.
D) higher consumer prices in the long run.
E) a leftward shift of the supply curve.

Question

Quizplus · Accepted Answer

The introduction of cost-saving developments by a price-taking firm in a competitive market is likely to lead to temporary positive economic profits for a few firms. As the new production procedure saves two steps, the firm can lower its production costs and therefore lower its prices to gain a competitive advantage in the market. However, this advantage is likely to be short-lived as other firms are likely to adopt similar cost-saving developments, leading to a decrease in prices and reduced economic profits. Therefore, while there may be a temporary increase in economic profits for a few firms, it is unlikely to be sustained in the long run.

Cost-Saving Developments,e