8.2 The Very Long Run: Changes in
Technology LO 4
Over the very long run, the most important influence on costs of
production and on material standards of living has been increases in
output made possible by technological improvements.
Technological improvements usually lead to downward shifts in
firms’ LRAC curves.
Changes in technology are often endogenous responses to changing
economic signals; that is, they result from the firms’ responses to
changes in the economic environment.
There are three important kinds of technological change:
developments of new production techniques, improved inputs, and
new products. All three play an important role in increasing material
living standards.
To understand any firm’s response to changes in its operating
environment, it is important to consider the effects of endogenous
innovations in technology as well as substitution based on changes in
the use of existing technologies.