Question: a. In the highly competitive TV manufacturing industry, a new innovation makes it possible to cut the average cost of a 50-inch plasma tv from $1,000 to $600. Most TV manufacturers quickly adopt this new innovation, earning massive short-run profits. In the long run, what will the price of a 50-inch plasma TV be?
b. In the highly competitive flash drive industry, a new innovation makes it possible to cut the average cost of an 8-gigabyte flash drive, small enough to fit in your pocket, from $5 to $4. In the long run, what will the price of a 8-gigabyte flash drive be?
c. Assume that the markets in parts a and b are both constant cost industries. If demand rises massively for these two goods, why won't the price of these goods rise in the long run?
d. In constant cost industries, does demand have any effect on price in the long run?
e. When average cost falls in any competitive industry, regardless of cost structure, who gets 100% of the benefits of cost cutting in the long run: consumers or producers?