Profit Increase and Economic Rent from Switching Technology
When a firm switches from an older technology (B) to a newer, more cost-effective one (A) while revenue remains constant, the resulting increase in profit is also the economic rent gained from the innovation. For instance, if producing 100 meters of cloth costs £50 with technology B and £40 with technology A, the cost reduction is £10. This cost saving translates directly into a £10 increase in profit, which represents the economic rent for adopting the new technology. The calculation is as follows:
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The Economy 2.0 Microeconomics @ CORE Econ
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
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Profit Increase and Economic Rent from Switching Technology
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