Question

What is the graphical effect of technological change? The SRAC curves would shift down and the...

What is the graphical effect of technological change?
The SRAC curves would shift down and the LRAC curve would shift up.
The SRAC curves would shift up and the LRAC curve would shift down.
The SRAC curves and the LRAC curve would shift up.
The SRAC curves and the LRAC curve would shift down.
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Answer #1

By definition, technological change that increases productivity shifts the product curves upward and the cost curves downward. If a technological change results in the firm using more capital, the average fixed cost curve shifts upward and at low levels of output, the average total cost curve may shift upward. At large output levels, average total cost decreases. Therefore, SRAC shifts down.

Now, Long-run average cost is arrived at by dividing the total cost of producing a particular output by the number of units produced.

As SRACs shift down, LRAC also shift down.

Hence, answer is (d) where both shift down.

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