In a single integrated market, monopolistic-compettive equilibrum, of
heterogenous firms (i.e. firms have different marginal costs), suppose a new technology
becomes available. Adopting the new technology requires an addiontal fixed-cost but it
can reduce a firm’s marginal cost of prodution by a gvein amount.
a). Could it be profit maximizing for some firms to adopt the new technology but not
profit maximizing for other firms to adop? Which firms would choose to adopt the new
technology? How would they be different from the firms that choose not to adopt it?
b). Now assume there are also trade costs. In the new equilibrium with both trade costs
and technology adoption, firms decide whether to export and also whether to adopt the
new technology. Would exporting firms be more or less likely to adopt the new
technology relative to non-exporters? Why?
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