If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)
A) upward shift in both the total product and average cost curves.
B) downward shift in both the total product and average cost curves.
C) downward shift in the total product curve and an upward shift in the average cost curve.
D) upward shift in the total product curve and a downward shift in the average cost curve.

Question

Quizplus · Accepted Answer

A process innovation results in an improvement in the production process. This means that the firm can produce more output with the same inputs, which leads to an upward shift in the total product curve. At the same time, the cost of production is reduced due to the improved efficiency, resulting in a downward shift in the average cost curve. Therefore, option D is correct. Option A is incorrect because an upward shift in both the total product and average cost curves would imply that the firm is producing more, but at a higher cost. Option B is incorrect because a downward shift in both curves implies a decline in production and cost, which is not consistent with the idea of a process innovation. Option C is incorrect because a downward shift in the total product curve would imply a reduction in output, which is not consistent with a process innovation that improves efficiency.

If a Firm Develops Better Methods of Producing a Product