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 .Which of the following can be concluded about the innovative firm which reduces its marginal and average cost by using the new technology?
A)The equilibrium output produced by this firm will increase.
B)The equilibrium output produced by this firm will decrease.
C)This firm will offer its produce at a price below P0.
D)This firm will offer its produce at a price above P0.

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 .Which of the following can be concluded about the innovative firm which reduces its marginal and average cost by using the new technology?

-Refer to Figure .Which of the following can be concluded about the innovative firm which reduces its marginal and average cost by using the new technology?
A)The equilibrium output produced by this firm will increase. 
B)The equilibrium output produced by this firm will decrease. 
C)This firm will offer its produce at a price below P0. 
D)This firm will offer its produce at a price above P0.

Quizplus · Accepted Answer

The new technology reduces the marginal and average cost for the innovative firm, which means it can produce at a lower cost than the preexisting firms. This will shift the long-run supply curve to the right due to the lower cost, resulting in a higher equilibrium output for the market. Therefore, the equilibrium output produced by this firm will increase. However, there is no information given about the price, so options C and D cannot be concluded.

In the Figure Given Below, Panel a Represents Preexisting Firms