Profitability of Technological Adoption
An 18th-century inventor develops a new machine that can perform the work of 5 laborers. However, operating the machine for one day requires 2 units of capital and 4 units of energy. Consider the hypothetical daily input costs in two different countries:
| Country | Daily Wage (per laborer) | Cost of Capital (per unit) | Cost of Energy (per unit) |
|---|---|---|---|
| Country A | 15 shillings | 10 shillings | 5 shillings |
| Country B | 3 shillings | 12 shillings | 8 shillings |
Based on this data, explain with calculations why a factory owner in Country A would find it profitable to adopt this new machine, while a factory owner in Country B would not.
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Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
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- Country B: Has very low wages for textile workers and coal is scarce and expensive.
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- Invention A: A complex loom that requires only one worker to operate but consumes a large amount of coal and is expensive to build. It replaces five workers who previously used simpler, non-powered looms.
- Invention B: A new furnace design that significantly reduces the factory's coal consumption but requires the same number of workers to operate and offers no change in the cost of machinery.
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An inventor develops a revolutionary new steam-powered machine that can do the work of ten factory workers but consumes a large amount of coal. The machine is available for purchase in two different regions.
- Region 1: Wages for factory workers are extremely high. However, coal is scarce and very expensive.
- Region 2: Coal is abundant and extremely cheap. However, wages for factory workers are very low.
Which of the following statements best analyzes why the widespread adoption of this new machine would likely be slow in both regions?