Question
There are currently a number of firms selling different brands and types of digital cameras. There...
There are currently a number of firms selling different brands and types of digital cameras. There is the opportunity for one firm to partake in research and development that will decrease the Average Total Cost of production (and only ATC, not MC). This firm will undertake the research and development so as to gain long run economic profits.
Homework Answers
Answer #1
The statement is true.
Reason
R&D for a firm leads to new products which also brings in new technology, lowering of the ATC in future. Since MC is not changed, only the fixed cost will be affected which does not affect in the short run.Thus, R&D may increase the cost to the firm currently, but it is definitely for long run economic profit as due to lower cost, it can lower the price of the product by gaining more market share.
As shown in the graph, due to lower ATC in future if R&D is used, it can increase its profitability in future.
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