Question

suppose we start with a perfectly competitive market，made of many sellers who each produce a small amount。
what do you predict will happen in this market as new technology is discovered by which production of this good can be automated，so that it is produced by machines instead of people？

will demand shift？ will supply shift？ will the number of firms change？if so，how？

Answer 1

New technology will increase the total production which will increase the market supply. So market supply will shift to right but demand curve will remain same.

Shift of supply curve to right will decrease the price level. In short run number of firms will remain same. But in long run because price goes down some firms may not be able to cover all its costs and some firms will leave the industry.

So improvement in technology will shift the supply curve to right which will decrease the price level. Decrease in prices will decrease the level of profits and in long run number of firms will be less than before the technological improvement.

So number of firms will decrease.

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