Discuss the impact of technological breakthrough on the prevention and appraisal cost and failure cost functions.

Expert Solution

There are different types of impact caused by the technological breakthroughs on these cost functions. The first impact is that at each level of quality, technological breakthrough will help to reduce the prevention and appraisal cost. The second impact is that slope of the prevention and appraisal cost function will also decrease with the help of technological breakthroughs at the each quality level. The third impact is the increased ability of the firm to satisfy the consumers' demand and market standards. It will help the firm to reduce the failure cost. Since, the failure cost is also influenced by the performance of the competitors, then technological breakthroughs help the firm to remain competitive in the industry & become able to set new standards. It further pushes the failure cost to decrease at each quality level. So, there is an inverse relationship between the technological breakthroughs and these cost functions.

keosha answered 2 years ago

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