5. Problems and Applications Q5 1. Short Run 2. Long Run STEP: 1 of 2 Suppose th

Question

5. Problems and Applications Q5 1. Short Run 2. Long Run STEP: 1 of 2 Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. Suppose Hi-Tech's patent prevents other firms from using the new technology Which of the following statements are true about what happens in the short run? Check all that apply Hi-Tech's average-total-cost curve shifts downward. Hi-Tech's marginal-cost curve shifts downward Hi-Tech's profits remain the same. The price of books decreases. Grade Step 1 TOTAL SCORE: 0/2 to complete this step and unlock the next step)

Explanation / Answer

The right answers are:

1) Hi-tech's average-total-cost curve shifts downward

2) Hi-tech's marginal cost curve shifts downward

Explanation: The new technology will bring down printing cost. so marginal cost i.e. the additional cost of printing a new book will come down. This will bring down total cost and average cost. So, option 1 and 2 are valid. H-Tech's profit will increase because of fall in total cost. So, options 3 is invalid. Also, the price of books will not decrease as Hi-Tech will want to sell books at the market price only in the short run to earn a higher profit. So option 4 is invalid.

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