Assume That the LCD and Plasma Television Set Industry Is

question 208

Multiple Choice

Assume that the LCD and plasma television set 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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Definitions:

Variable Cost

Expenses that change in proportion to the activity or volume of business, such as materials and labor.

Right Price

The optimal price point for a product or service, taking into account factors such as value to the customer, demand, and competition.

Consumer Demand

The desire and willingness of consumers to purchase goods and services at various price points.

Your Gut

Colloquial term referring to an individual's instinctive reaction or initial feelings about a decision or situation, often sans empirical evidence.