Question

How would an improvement in technology, like the high-efficiency gas turbines or Pirelli tire plant, affect the long-run average cost curve of a firm? Can you draw the old curve and the new one on the same axes? How might such an improvement affect other firms in the industry?

Answer 1

Solutions-

Improvement in technology lowers the cost of production. Improvement in technologycan alter the structure of an industry and the size of a firm. Because of this reason it is usuallynot possible to draw a new and old curve on the same axis. If the method of technology adoptedby other firms was the same, then the outcome would be similar. If the technology was patented,then other firms might be forced to leave the market because of the lower price of theircompetitor.

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