19.8 Suppose a firm is considering investing in research that would lead to a cost-saving innovation.

Assuming the firm can retain this innovation solely for its own use, will the additional profits from the lower (marginal) costs be greater if the firm is a competitive price taker or if the firm is a monopolist? Develop a careful graphical argument. More generally, develop a verbal analysis to suggest whether competitive or monopoly firms are more likely to adopt cost-saving innovations. (For an early analysis of this issue, see W. Fellner, “The Influence of Market Structure on Technological Progress,” Quarterly Journal of Economics [November 1951]: 560–567.)