INTRODUCTORY MICROECONOMICS QUESTION Take, as an example, the...

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INTRODUCTORY MICROECONOMICS

QUESTION

Take, as an example, the world market for a mineral of your choice (e.g. iron ore, coal etc.) and assume that individual mining firms are price takers.
Develop an economic model, including appropriate diagrams, to assess the effects of a technological change (which must be properly referenced), on firm decisions and world market outcomes.
In your answers, assume that the world market is the only relevant market for the industry.

Suggested answer format:

(a) Brief description of the industry and its competitive structure, and of the new technology.

(b) Base case scenario of long-run equilibrium for industry and a typical or representative mining firm.

(c) How technology changes production function and cost curves, and thus, firm decisions and market outcomes in the short run.

(d) Further adjustments over the longer run to reach a new long-run equilibrium. Some challenges and options here on nature of long run firm and industry supply.

(e) Comparison of decision changes and market outcome changes as we move from (b)-(d).

Also include discussion of distribution of the benefits of the new technology.

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Technology change in Iron ore industry

Table of contents:

Table of contents: 1

a) Introduction to iron ore industry: 2

b) Long run equilirbrium for industry and representative firm 3

c) Technology change and change in production functions and cost curves of the representative firm: 3

d) Long run equilibrium after technological change: 4

e) Decision changes and market outcome changes due to technological change: 5

Technology change in Iron ore industry
a) Introduction to iron ore industry:

In the iron ore industry where individual firms are assumed to be price takers, it is characterized by perfectly competitive market where the demand and supply forces in the market determine the equilibrium price and equilibrium output in the industry and the firms in the market can make only output decisions based on their cost conditions and supply some part of the equilibrium output in the industry.

In the diagram below, the industry demand for iron ore and supply of iron ore by the mining firms is represented using the demand DD1 and supply curves SS1 and...

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