Use the following graph to answer the next question, where LRATC = long-run average total cost. What happens when a firm adopts a new technology?

Question

BlackTom AI · Accepted Answer

To analyze the impact of adopting a new technology, we first consider what a technology upgrade does in production theory.

Option a: The firm must have higher revenue. This is not necessarily true. A new technology can lower costs or increase output, but it does not by itself guarantee higher revenue, which depends on price, demand, and market conditions.

Option b: The firm must have higher costs. Typically, a new technology lowers average costs by improving productivity or cost efficiency, at least in the long run. It might require upfront investment, but the long-run average total cost (LRATC) curve would reflect lower costs if the technology is advantageous. Therefore this statement is not generally correct.

Option c: The firm must increase its profit. Profit change depends on both costs and revenue changes. A technology that reduces costs could increase profit, but it could also reduce revenue if it shifts output or market conditions. Since the question is about what happens when adopting a new technology in the context of LRATC, we cannot assert profit must increase without more information. This makes the statement too strong to be universally true here.

Option d: The firm will have a new production function. This is a direct consequence of adopting a new technology: the production technology defines how inputs are transformed into outputs, and a technological upgrade changes the production function itself. The LRATC curve may shift due to changes in cost structures associated with the new production function, but the fundamental effect specified by the graph context is that the production function has changed.

Putting it together, while the other options discuss revenue, costs, and profit with assumptions, only a technology upgrade inherently alters the production function. The graph’s implication in this question aligns with the correct option describing a new production function, rather than asserting universal changes in revenue, costs, or profits.

Use the following graph to answer the next question, where LRATC = long-run average total cost. What happens when a firm adopts a new technology?Single choice

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