Question

Show graphically and explain how an increase in the technology that augments the fixed factor of production of perfectly competitive firms affects the price, output and profits of a representative firm in both the short-run and in the long-run.

Answer 1

Consider the given issue here in the SR case the initial value level is "P1" and the ideal amount provided is "q1", => the degree of benefit earned by the individual firm is given by, "P1A1A2B1".

Now, as the technology improve, => the "SRATC" and the "SRMC" will move descending to "SRATC2" and "SRMC2". In this way, the new balance is "A0", => the ideal amount provided increments to "q2 > q1" and the degree of benefit additionally increments to "P1A0B2B3". Presently, if all the organizations into the business experience this mechanical preferred position, => all the firm will increase its output, => the supply curve will move to right, => the "P" diminishes to "P2 < P1", => the ideal benefit boosting yield is given by "q3<q2" and the level profit is "P2CB5B4".

Thus, in the SR because of the technoloical improvement "q" and benefit of the both firm expands contrast with the underlying circumstance and the "P" diminishes.

Presently, think about the instance of the LR circumstance.

So, here the underlying "ATC" and "MC" are given by "LRATC " and "LRMTC1", => the LR equilibrium is given by "A1", => the output provided by all organizations are given by "q1" and the cost is "P1".

Presently, technological advancement prompts decline in "LRATC" and "LRMTC" to "LRATC2" and "LRMTC2" separately, => at the old cost "P1" firm increment output to "q2" prompts positive economic benefit, => new firm will go into the business, => the "P" begins diminishing, => the new harmony will set up at "A2", => the output provided by the individual firm reduction to "q1", => and the benefit go to the typical benefit.

In this way, as the impact of technological advancement "q" and profit stay same however the "P" diminishes.