Consider a firm in a perfectly competitive industry. Market price right now is Pmkt. Demand for the firm's prod- ucts (not Market demand) is perfectly elastic at the market price. (Note: since this is a perfectly competitive industry, this is true in the long-run or short-run and is a consequence of the price-taking assumption) This firm is offered an opportunity to upgrade technology that will make all labor more productive than before (with the same machines). The technology costs a fixed amount F. (a) How does the firm's supply curve change with the technology? (b) Will the firm adopt the technology?
Consider a firm in a perfectly competitive industry. Market price right now is Pmkt. Demand for the firm's prod- ucts (not Market demand) is perfectly elastic at the market price. (Note: since this is a perfectly competitive industry, this is true in the long-run or short-run and is a consequence of the price-taking assumption) This firm is offered an opportunity to upgrade technology that will make all labor more productive than before (with the same machines). The technology costs a fixed amount F. (a) How does the firm's supply curve change with the technology? (b) Will the firm adopt the technology?
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.3P
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