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What effect might market power have on technological change? Market power results in A
What effect might market power have on technological change?
Market power results in
A. economic efficiency, which eliminates the need for new technology.
B. no barriers to entry, allowing new firms to begin producing technologically-improved substitutes.
C. marginal-cost pricing, leaving no resources with which to invest in new technology.
D. economic profits that can be spent on research to develop new products.
E. economic profits, leaving no incentive to develop new products.
Expert Solution
Market power results in E. economic profits, leaving no incentive to develop new products.
The closer a firm is to being a monopoly, the more control they have over prices and output. That means they have an opportunity to earn an above-normal profit, also known as economic profit. Earning economic profit removes the incentive to innovate or develop new products. That means there is not as much likelihood of research and development to improve products or develop new products as there would be if the firm faced competition and pressure to create and innovate.
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