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Question
How does technological progress affect the supply curve of a firm?
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Solution
The supply curve of a firm is a positive function of a state of technology. That is, if the technology available to the firm appreciates, more amount of output can be produced by the firm with the given levels of capital and labour. Due to such innovations or technological advancements, the firm will experience lower cost of production, which will lead to rightward downward shift of the MC curve. This will further lead to rightward shift of the firm’s supply curve. Thus, due to the appreciation and advancement of production techniques, the firm will produce more and more output that will be supplied at a given market price.
RELATED QUESTIONS
How are the equilibrium price and quantity affected when both demand and supply curves shift in the same direction?
Suppose the demand and supply curves of salt are given by:
qD = 1,000 − p qS = 700 + 2p
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is
qS = 400 +2p
How does the equilibrium price and quantity change? Does the change conform to your expectation?
(c) Suppose the government has imposed a tax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?
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