1.7.

a. In the highly competitive TV manufacturing industry, a new innovation makes it possible to cut the average cost of a 50 inch plasma TV from $1,000 to $400. Most TV manufacturers quickly adopt this new innovation, earning massive short-run profits.

In the long run, what will the price of a 50 inch plasma TV be?

b. In the highly competitive memory key in dustry, a new innovation makes it possible to cut the average cost of a 20-megabyte memory key, small enough to fit in your pocket, from $5 to $4. In the long run, what will the price of a 20-megabyte memory key be?

c. Assume that the markets in parts a and b are both constant cost indu tries. If demand rises massively for these two goods, why won't the price of these goods rise in the long run?

d. In constant cost industries, does demand have any effect on price in the long run?

214 • PART 3 • Firms and Factor Markets

e. When average cost falls in any competitive industry, regardless of cost structure, who gets 100% of the benefits of cost cutting in the long run: consumers or producers?