Solution Found!
Suppose the book-printing industry is competitive and
Chapter , Problem 6(choose chapter or problem)
Suppose the book-printing industry is competitive and begins in a long-run equilibrium.
a. Draw a diagram showing the average total cost, marginal cost, marginal revenue, and supply curve of the typical firm in the industry.
b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What happens to Hi-Tech's profits and the price of books in the short run when Hi-Tech's patent prevents other firms from using the new technology?
c. What happens in the long run when the patent expires and other firms are free to use the technology?
Questions & Answers
QUESTION:
Suppose the book-printing industry is competitive and begins in a long-run equilibrium.
a. Draw a diagram showing the average total cost, marginal cost, marginal revenue, and supply curve of the typical firm in the industry.
b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What happens to Hi-Tech's profits and the price of books in the short run when Hi-Tech's patent prevents other firms from using the new technology?
c. What happens in the long run when the patent expires and other firms are free to use the technology?
ANSWER:Step 1 of 3
a)
A diagram representing a firm operating in a perfectly competitive book-printing industry must be drawn in the long run.
The required figure may be drawn as follows:
The figure represented the firm's marginal cost and average total cost curves. In the long run, the price received by the firm equals the minimum level of the average total cost. Since the marginal cost equals the average total cost at its minimum level, the price also equals the marginal cost. The firm is producing the level of output where marginal cost equals price. This output level is represented as \({Q_1}\) in the figure.
Since price equals average total cost, it is clear that the firm is neither earning profits nor incurring any loss in the long run.