Suppose the book printing industry is competitve and beginswith a long run equil

Question

Suppose the book printing industry is competitve and beginswith a long run equilibrium. Hi-Tech Printing Company invents a new process that sharplyreduces the cost of printing books. What happens to Hi-Tech'sprofits and the price of books in the short run when Hi-Tech'spatent prevents other firms from using the new technology? Suppose the book printing industry is competitve and beginswith a long run equilibrium. Hi-Tech Printing Company invents a new process that sharplyreduces the cost of printing books. What happens to Hi-Tech'sprofits and the price of books in the short run when Hi-Tech'spatent prevents other firms from using the new technology?

Explanation / Answer

Businesses in competitive markets take the market price (P) asgiven. Therefore, the average revenue per unit is totalrevenue divided by number of units, or (P x Q)/Q = P. Themarginal revenue from an additional unit is equal to the change intotal revenue divided by the change in quantity. Since theprice is given, the marginal revenue is constant as well (andequals average revenue). A perfectly competitive firm withrising marginal costs maximizes profit by producing up until thepoint at which marginal cost is equal to marginal revenue. Themarginal revenue for a perfectly competitive firm is the marketprice determined by the intersection of the supply and demandcurves.

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