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Innovation and Input Costs
A manufacturing firm is considering two production methods to create its product. Method 1 is labor-intensive, requiring many workers but little machinery. Method 2 is capital-intensive, requiring expensive machinery but few workers. According to the economic model of technology choice, explain the specific economic condition that would most likely cause this firm to switch from Method 1 to Method 2.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
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Technology Choice at a Manufacturing Plant
A textile factory can produce 1,000 shirts using one of two methods. Method A uses 5 workers and 20 units of electricity. Method B uses 10 workers and 10 units of electricity. Initially, both methods cost the factory the exact same amount to produce the 1,000 shirts. A new government policy then causes the price of electricity to double, while workers' wages remain unchanged. Based on an economic model of technology choice, what is the most logical immediate response from the factory owner to this price change?
Evaluating a Business Strategy
Innovation and Input Costs
Innovation Rents
A firm currently uses a production process that requires equal amounts of two inputs. If the price of one input rises sharply, the economic model of technology choice predicts that the firm will adopt any available alternative technology that uses less of the now-more-expensive input, regardless of the alternative's overall production cost.
Match each scenario with the core concept from the economic model of technology choice that it best illustrates.
A company is considering switching to a new production technology. According to the economic model of technology choice, arrange the following events in the logical order that would lead the company to adopt the new technology and profit from it.
According to the economic model of technology choice, when a change in the relative cost of production inputs occurs (e.g., labor becomes more expensive than machinery), a firm can gain a competitive advantage by switching to a new production method that uses less of the pricier input. The additional profit earned by the first firm to successfully adopt this new, more cost-effective technology is called a(n) ____ ____.
Economic Incentives for Technological Innovation
A manufacturing firm can produce 100 units of a product using any of the three technologies shown below, each requiring a different combination of labor and coal.
Technology Labor (hours) Coal (tons) A 10 2 B 5 5 C 2 10 If the wage for one hour of labor is $20 and the price of one ton of coal is $50, which technology should the firm choose to minimize its production costs?
An engineer develops a new production technology that uses significantly less labor but requires more energy compared to a company's current method. According to the economic model of technology choice, under which of the following economic conditions would the company have the strongest incentive to adopt this new technology?