Arrange the following in the order in which they happen:
(A) The firm’s marginal cost at any level of output falls.
(B) The same levels of capital and labour now produce more units of output.
(C) The firm’s supply curve shifts to the right.
(D) A competitive firm makes an organisational innovation.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (D), (B), (A), (C)
Technological progress works through the MC curve, step by step:
(D) A competitive firm makes an organisational innovation. — This is the starting change.
(B) The same levels of capital and labour now produce more units of output. — The innovation makes the same inputs more productive.
(A) The firm’s marginal cost at any level of output falls. — Each unit now needs fewer inputs, so it costs less to produce.
(C) The firm’s supply curve shifts to the right. — The supply curve is a part of the MC curve, so it moves with it. At each price the firm supplies more.
NCERT (2026-27): “4.5.1 Technological Progress Suppose a firm uses two factors of production – say, capital and labour – to produce a certain good. Subsequent to an organisational innovation by the firm, the same levels of capital and labour now produce more units of output. Put differently, to produce a given level of output, the organisational innovation allows the firm to use fewer units of inputs. It is expected that this will lower the firm’s marginal cost at any level of output; that is, there is a rightward (or downward) shift of the MC curve. As the firm’s supply curve is essentially a segment of the MC curve, technological progress shifts the supply curve of the firm to the right. At any given market price, the firm now supplies more units of output.” |