Assume That the LCD and Plasma Television Sets Industry Is

question 174

Multiple Choice

Assume that the LCD and plasma television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run?

• A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate.
• B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.
• C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.
• D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

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