Question

in the highly competitive tv manufacturing industry, a new innovation makes it possible to cut the average cost of a 50-inch plasma screen from $1,000 to $400. most tv manufacturers quickly adopt this new innovation, earning massive short-run profits. in the long run, what will the price of a 50-inch plasma tv most likely be? in the highly competitive tv manufacturing industry, a new innovation makes it possible to cut the average cost of a 50-inch plasma screen from $1,000 to $400. most tv manufacturers quickly adopt this new innovation, earning massive short-run profits. in the long run, what will the price of a 50-inch plasma tv most likely be? $1,000 $1,400 $400 $600

Answer 1

In the long run, due to increased competition and supply, the price of a 50-inch plasma TV will likely stabilize close to the new average production cost of $400, ensuring that firms no longer earn excess profits.

Step-by-step explanation:

In the context of a highly competitive TV manufacturing industry, when a new innovation reduces the average cost of a 50-inch plasma screen from $1,000 to $400 and is widely adopted, it is likely to result in massive short-run profits. However, due to the competitive nature of the market, these profits will attract new firms to the industry or encourage existing firms to expand production. According to the principles of economics, in the long run, the entry of new firms and the expansion of production by existing firms will increase the supply of 50-inch plasma TVs.

This increase in supply, assuming demand remains constant, will put downward pressure on prices until firms are no longer earning excess profits. As firms can now produce the TVs at a lower cost, the new market price will stabilize close to the new average cost of production. Thus, the long-run price of a 50-inch plasma TV will most likely be around $400, reflecting the new, lower average cost of production.