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? IN DEPTH AND DETAILED

Answer 1

Improvement in technology implies the fall in cost of production. Now same level of inputs can garner more output or same output can be attained through lesser level of inputs.

Thus, Average Cost curve shift down thereby signifying same output at lesser inputs.

Following is diagram:

In above diagram, improvement in technology would pull down average cost curve to AC1.

Improvement in technology would cause fall in cost of production and technology can be used by other firms. Hence, it is likely to reduce cost of whole industry.