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 price falls because the firms with the new technology can produce at a lower cost, increasing supply. These firms make a positive economic profit due to their cost advantage, while firms with the old technology incur economic losses as they cannot compete with the lower prices.

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