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) while the price of the cloth is unchanged. Read the following statements and select the correct one.
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Question

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) while the price of the cloth is unchanged. Read the following statements and select the correct one.

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Accepted Answer

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

Answer

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.

Answer

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

Answer

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.

Crowdly

In the following diagram you are given two technologies, A and B, which can prod...

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