Assume that the LCD and plasma television sets 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) 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.
B) The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.
C) 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.
D) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation.
Question 2
A decrease in the price level will
A) shift the aggregate demand curve to the right.
B) move the economy down along a stationary aggregate demand curve.
C) move the economy up along a stationary aggregate demand curve.
D) shift the aggregate demand curve to the left.
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