Suppose a firm experiences an increase in technology. All else equal, will this allow the firm...

Suppose a firm experiences an increase in technology. All else equal, will this allow the firm to produce the same level of output at a lower cost? Explain.

Expert Solution

Suppose a firm experiences an increase in technology. All else equal, this allow the firm to produce the same level of output at a lower cost. Since advancement in technology, will shift production function outward meaning more output can be produced. With technology, marginal product of existing input will increase. In other words, same inputs can produce more output (they become efficient) and this will reduce the cost of employing more imputs. Technology advancement means that same goods can be produced with the less amount of resources say labour or capital, and therefore reduces cost of production and hence lower cost. For example, if a machine can produce 10 units of cloth, but due to advancement in technology it can now produce 15 units of cloth it means that less number of machine are required to produce a certain threshold level of output and reduces cost of production (in terms of input used). Any improvement in technology will lead to more output produce by an outward shift in production possibility curve.

Rahul Sunny answered 8 months ago

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