Cell phones have become very popular. At the same time, new technology has made them less expensive to produce. Assuming that the technological advance caused cost curves to shift down-ward at the same time that demand was shifting to the right, draw a graph or graphs to show that will happen in the short run and in the long run

Question

Cell phones have become very popular. At the same time, new technology has made them less expensive to produce. Assuming that the technological advance caused cost curves to shift down-ward at the same time that demand was shifting to the right, draw a graph or graphs to show that will happen in the short run and in the long run

Answer 1

To understand the effects of a technological advance on the production and demand of cell phones, we can analyze the short run and long run scenarios using a graph.

First, let's consider the short run scenario. In the short run, some factors of production may be fixed, meaning the firm cannot easily adjust its production capacity. However, with a technological advance, we see a downward shift in the cost curves (i.e., average total cost, average variable cost, and marginal cost). This indicates that the cost of producing cell phones has decreased, making it more efficient.

Graph representation for the short run scenario:

1. Cost Curves:
- Average Total Cost (ATC): Shifts downward
- Average Variable Cost (AVC): Shifts downward
- Marginal Cost (MC): Shifts downward

2. Demand Curve:
- Demand: Shifts to the right, indicating an increase in the number of cell phones demanded.

Combining the cost curves and demand curve, we would observe an equilibrium point where the new quantity produced meets the new demand level, likely at a lower price due to the decrease in production costs.

Now, let's move on to the long-run scenario. In the long run, firms have more flexibility in adjusting their production capacity. With the technological advance, firms will have an opportunity to expand their production capabilities.

Graph representation for the long-run scenario:

1. Cost Curves:
- Average Total Cost (ATC): Shifts downward due to economies of scale and increased efficiency.
- Average Variable Cost (AVC): Shifts downward due to cost savings from increased production.
- Marginal Cost (MC): Shifts downwards due to improved production efficiency.

2. Demand Curve:
- Demand: Shifts to the right, representing an increase in the overall market demand for cell phones.

Combining the lower cost curves and increased demand, cell phone manufacturers can produce and supply more units. This will result in a higher equilibrium quantity at a relatively lower price compared to the pre-technological advancement situation.

So, in summary, graphically representing the short run and long run scenarios would show a downward shift in cost curves due to technological advancement, leading to increased production and potentially lower prices. Additionally, with increased demand, the quantity of cell phones produced and sold would rise in both the short run and long run.