Question
In a single integrated market, monopolistic-compettive equilibrum, of heterogenous firms (i.e. firms have different marginal costs), suppose a new technology becomes available. Adopting the new
In a single integrated market, monopolistic-compettive equilibrum, of heterogenous firms (i.e. firms have different marginal costs), suppose a new technology becomes available. Adopting the new technology requires an addiontal fixed-cost but it can reduce a firm's marginal cost of prodution by a given amount. a). Could it be profit maximizing for some firms to adopt the new technology but not profit maximizing for other firms to adop? Which firms would choose to adopt the new technology? How would they be different from the firms that choose not to adopt it? b). Now assume there are also trade costs. In the new equilibrium with both trade costs and technology adoption, firms decide whether to export and also whether to adopt the new technology. Would exporting firms be more or less likely to adopt the new technology relative to non-exporters? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started