Technology Reduces the Average Cost of Production, So in the Long

question 217

Multiple Choice

Technology reduces the average cost of production, so in the long run i. perfectly competitive firms produce at a lower average cost.
Ii. the market price of the good falls.
Iii. firms with older plants either exit the market or adopt the new technology.

• A)i only
• B)i and ii
• C)iii only
• D)i and iii
• E)i, ii, and iii

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales activity, such as rent, salaries, and insurance premiums.

Contribution Margin

The amount by which sales revenue exceeds variable costs of goods sold, indicating how much revenue contributes towards covering fixed costs and generating profit.

Variable Costs

Expenses that change in proportion to the level of production or sales activity, such as raw materials and direct labor.

Break-even Sales

The amount of revenue needed to cover total costs, resulting in neither profit nor loss.