Question

Initially, a competitive industry that has 1,000 firms is in long-run equilibrium. Then 100 firms in the industry adopt a new technology that reduces the average cost of producing the good. In the short run, the price ________, firms with the new technology make ________ profits, and firms with the old technology ________.

Answer 1

Answer:

The correct answer is: declines; higher economic; will incur losses.

Explanation:

A perfectly competitive firm has 1,000 firms that are operating in the long-run equilibrium.  

Out of these firms, 100 firms have adopted a new technology that has caused their average cost of production to decline.  

These firms will be able to produce more output at the same cost. As a result, their supply will increase, this will cause the price to decline.  

The firms with new technology that are facing a lower average cost of production will earn positive economic profits as they have lower costs.  

The firms with old technology that have higher production costs will incur economic losses as they have higher costs.