Question

From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.

Short answer

The diagram would be as follow:

Step-by-step solution

Step 1. Introduction

The average cost of producing any good or service is the per-unit cost incurred in the production process. It is obtained by the ratio of total cost and number of units produced. The average cost curve is a U-shaped curve.

Step 2. Explanation

Improvement in technology would help in producing the same amount of output at a lower cost or a higher amount of output at a lower cost. This would help in reducing the cost of production. A reduction in the total cost of production would contribute to a reduction in the average cost. This would cause a downward shift in the average cost curve.

The graph would look like this:

The country would be able to produce a higher volume of output at the same cost, this would cause a shift in the production possibility curve.

Here, as the economy would be able to produce more using the given resources, the production possibility curve would move rightward.