Firms and Technological Change:

Technological would involve 3 points

  • More output with the same inputs
  • The improvement of existing output
  • The creation of new ideas 

Technological Change itself would contains 2 main components

Invention: This is the creation of a complete new product and the UK itself has a high number of patents with new ideas

Innovation: The putting of an invention into commercial use, the process of converting knowledge and ideas into making existing or new products much better.

Firms that are capable of innovation can LOWER their costs and come up with new products, new processes, new production techniques – DYNAMIC EFFICIENT

Additionally it would mean that the firm itself can be more competitive. 

It has normally said that Technical progress is accompanied with new capital equipment, new human skills. So therefore there are limits to the speed with which changes can occur. 

E.G. is Broadband which has the UK has take up on-  there has been criticism saying the process is slow to keep up with the major cooperations for example changes in stock market ( but fast for individuals themselves). Therefore innovation would take time to become the norm in all industries. 

Some industries will virtually experience constant technical change where new innovations continually forces costs down. These industries will involve products with short life cycle. E.G. DVD players are said to this case as 20 years ago a DVD player was selling at £500 but after years innovation had taken place over the years, cost has fallen leading to a more technical DVD player being as low as £20 nowdays.


  • Need to consider the type of firm: Some firms might not have the incentive to invest in innovation – perfect competition may be the case where the firms themselves might not have the incentive due to perfect knowledge leading free riders.
  • Type of economies: The less developed economies tend to have to settle with the old models due to the lack of funds to get new ones. So therefore costs are still quite high.
  • The improvement from one model to the next- in terms of machinery how much more output can this new capital equipment produce compared the old one. If it is by small margins it might not bring a huge change to costs.
  • Could invention cause monopoly rather than competition due to the patents that has put in place. Therefore could exploit customers with high prices.



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