In the figure given below, Panel A represents preexisting firms which are in long run equilibrium at price P₀ and output q₀.MC and AC represents the marginal cost and the average cost of the preexisting firms.Panel B represents a market where every seller has the smallest ability to affect prices.The market is in equilibrium at price P₀ and output Q shown by the intersection of the long-run supply curve (LRS) and market demand (D).

-Refer to Figure .If a preexisting firm adopts a new cost effective technology (which reduces production costs).Which of the following changes will be observed?
A)The price level in the market will shift upward.
B)The market demand curve will shift to the right.
C)The LRS curve will shift upward.
D)The MC and AC curves of the innovative firm will shift downward.

Question

In the figure given below, Panel A represents preexisting firms which are in long run equilibrium at price P₀ and output q₀.MC and AC represents the marginal cost and the average cost of the preexisting firms.Panel B represents a market where every seller has the smallest ability to affect prices.The market is in equilibrium at price P₀ and output Q shown by the intersection of the long-run supply curve (LRS) and market demand (D) .

-Refer to Figure .If a preexisting firm adopts a new cost effective technology (which reduces production costs) .Which of the following changes will be observed?

-Refer to Figure .If a preexisting firm adopts a new cost effective technology (which reduces production costs).Which of the following changes will be observed?
A)The price level in the market will shift upward. 
B)The market demand curve will shift to the right. 
C)The LRS curve will shift upward. 
D)The MC and AC curves of the innovative firm will shift downward.

Quizplus · Accepted Answer

Adoption of a new cost-effective technology will decrease the marginal cost and the average cost of the innovative firm. This will shift the MC and AC curves downward. However, it will not have any effect on the market demand or LRS curve, and hence the price level or the market equilibrium output will remain the same.

In the Figure Given Below, Panel a Represents Preexisting Firms