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Effect of a Patented New Techonology on Lorn-Run Equilibrium

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Suppose the book-printing industry is competitive and begins in a long-run equilibrium.
a. Draw a diagram describing the typical firm in the industry.
b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What
happens to Hi-Tech's profits and the price of books in the short run when Hi-Tech's patents prevents
other firms from using the new technology?
c. What happens in the long run when the patent expires and other firms are free to use the technology?

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Solution Summary

This solution shows what happens in a monopolistically competitive industry at equilibrium when one firm patents a new technology that significantly reduces costs.

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a) See the attached file. At a typical firm's profit-maximizing point (where MR=LRMC), its Long-Run Average Cost (LRAC) equals the market price (P=AR=D) and it makes zero economic profit.
b) Hi-Tech's AC and MC ...

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