The figure given below represents a firm in a market characterized by many buyers and one seller.MC represents the marginal cost, MR the marginal revenue, and D the demand curve of a firm.The firm is initially in equilibrium producing 6 units of output at a price of $10 per unit.

-Refer to Figure .Suppose the adoption of a new technology lowers the cost of production while the buyer's valuation remains unchanged.Which of the following changes will be observed by the firm?
A)The demand curve for its product will shift to the left.
B)The marginal cost curve will shift downward.
C)The equilibrium output of the firm will fall below 6 units.
D)The marginal revenue curve will shift downward.

Question

The figure given below represents a firm in a market characterized by many buyers and one seller.MC represents the marginal cost, MR the marginal revenue, and D the demand curve of a firm.The firm is initially in equilibrium producing 6 units of output at a price of $10 per unit.

-Refer to Figure .Suppose the adoption of a new technology lowers the cost of production while the buyer's valuation remains unchanged.Which of the following changes will be observed by the firm?
A)The demand curve for its product will shift to the left. 
B)The marginal cost curve will shift downward. 
C)The equilibrium output of the firm will fall below 6 units. 
D)The marginal revenue curve will shift downward.

Quizplus · Accepted Answer

With the adoption of a new technology lowering the cost of production, the marginal cost curve will shift downwards. This means that the firm can produce the same quantity of output at a lower cost. This will result in the firm increasing its profits, which will be reflected in a higher marginal revenue curve. The demand curve for its product will not shift as the buyer's valuation remains unchanged. The equilibrium output of the firm may or may not fall below 6 units, depending on the extent of the cost savings from the new technology.

The Figure Given Below Represents a Firm in a Market