Recall the model with fim performance differences in a single integrated market
ID: 1105317 • Letter: R
Question
Recall the model with fim performance differences in a single integrated market discussed in the chapter. Now assume that a new technology becomes available. Any firm can adopt the new technology, but its use requires an additional fixed-cost investment. The benefit of the new technology is that it reduces a firm's marginal cost of production by a given amount. a. Could it be profit maximizing for some firms to adopt the new technology but not profit maximizing for other firms to adopt that same technology? Which firms would choose to adopt the new technology? How would they be different from the firms that choose not to adopt it? Assuming that if a firm invests in the technology, it will face a fixed cost 7, but face a marginal cost ct which is lower than its marginal cost o without the technology, OA. the technology is more likely to increase a firm's profits when the scale of production decreases. OB. it is possible that some firms (low cost firms) will choose to adopt the technology while others (high cost firms) do not OC. the gap c-ct will be larger for a low marginal cost firm than for a high marginal cost firm. OD. a firm with high marginal costs will need a lower level of output to justify the technology than a firm with low marginal costs. b. Now assume that there are also trade costs. In the new equilibrium with both trade costs and technology adoption, firms decide whether to export and also whether to adopt the new technology. Would exporting firms be more or less likely to adopt the new technology relative to nonexporters? Why? A fim that exports faces a lower marginal cost than one that does not export, and will therefore be more likely to use this new technologyExplanation / Answer
Part A) ANS IS C
Firm with high marginal cost will produce less quantity or output compared to firm with large or high marginal cost.
B)Firm exports when marginal cost is lower and thefefore be less likely to use this new technology
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