Initially, a perfectly competitive industry that has 1,000 firms is in long- run equilibrium. Then 100 firms in the industry adopt a new technology that reduces the average cost of producing the good. In the short run, the price _______ , firms with the new technology make _______ economic profit, and firms with the old technology _______.

Question

Quizplus · Accepted Answer

In the short run, the adoption of new technology by some firms reduces their average cost, allowing them to offer lower prices or accept lower market prices while still making a profit. This puts downward pressure on the market price. Firms with the new technology can make positive economic profits due to their lower costs, while firms with the old technology, facing the same lower market prices but without the benefit of reduced costs, may incur economic losses.

Initially, a Perfectly Competitive Industry That Has 1,000 Firms Is