A perfectly competitive industry is in long- run equilibrium. Some firms in the industry adopt new technology that reduces the average total cost of producing the good. In the long run, the price is _______ , firms with the new technology make _______ economic profit, and firms with the old technology _______.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the adoption of new technology that reduces costs leads to lower prices in the long run as firms compete. Firms with the new technology will have lower costs and can afford to lower prices to stay competitive, leading to zero economic profit due to the market's nature of driving profits to normal levels. Firms with the old technology must either adopt the new technology to reduce costs and compete or exit the industry because they cannot profitably compete at the new, lower price level.

A Perfectly Competitive Industry Is in Long- Run Equilibrium