In the following diagram you are given two technologies, A and B, which can produce 100 metres of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocosts, NM, GF and JH. The wage cost and the price of coal are denoted by wand p, respectively. Your firm competes with many other firms in this cloth market. In period 1, the wage cost and the price of coal are (w, p) = (10, 20) and the price of the cloth is 2 per metre. All firms employ technology B in period 1. In period 2, the wage cost and the price of coal change to (w, p) = (20, 10). Which of the following statements is correct?

a. If your firm is the only firm switching to technology A in period 2, then your innovation rent is $140 per 100 metres of cloth.

b. If all firms are able to switch to technology A then they will all enjoy positive innovation rents, both in the short run and long run.

c. The first firm to adopt technology A in period 2 is called the initiator.

d. If a few firms are unable to switch to technology A from B then these firms will go bankrupt.

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