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Assume that your business firm is a price taker and that the company sells widgets at...

Assume that your business firm is a price taker and that the company sells widgets at $10 apiece. Your firm is maximizing profits. One of your engineers discovers the presence of a substitute input that enables you to cut your production costs in half. Given that information, answer the following questions: What price will you charge for your widgets following the discovery of the input and its subsequent use in production? Why? Will you decrease output, increase output, or keep output the same? Why?

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Answer #1

If I am operating in a competitive then the discovery of new substitute input that has reduced the cost of production will not influence the market price. this indicates that I will continue to charge the market price which is $10 apiece. This is because this is the price is set by the market forces and I as an individual firm cannot change it

however my cost of production has reduced due to which my marginal cost function has shifted to the right and I will be able to produce more units at the same price. I might start earning greater economic profit in the short run because of reduced cost and unchanged price.

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