Imagine a firm in a competitive market comes up with a new production method, which halves its marginal cost at all levels of Q. Fixed costs are unaffected. Which of the following statements are true? a. The firm's AC at all levels of Q would be lower. b. The firm would extract an innovation rent from selling at the market price with lower costs. c. The firm's point of minimum AC would be a higher level of Q. d. The innovation would immediately cause the market price to drop.

Imagine a firm in a competitive market comes up with a new production method, which halves its marginal cost at all levels of Q. Fixed costs are unaffected. Which of the following statements are true? a. The firm's AC at all levels of Q would be lower. b. The firm would extract an innovation rent from selling at the market price with lower costs. c. The firm's point of minimum AC would be a higher level of Q. d. The innovation would immediately cause the market price to drop.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis

Section: Chapter Questions

Problem 1DQ

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