The Impact Of Technology On Production And Short-Run Curves

The Impact of Technology on Production and Short-run Curves

Technology is the knowledge of using tools and machines to do tasks more efficiently. We use technology to control the world we live in. Since the art of making fire and creating handcrafted tools, our civilization has come a long way. Technology today has a great importance on production. Every advancement on technology makes the production easier, quicker and at a low cost. Technology has a great impact on short-run curves by when technology advances then production of units will increase.

When technology advances so does the production of units increase which causes the average variable cost, which is the costs that vary with the quantity produced, to decrease. Also as the production increases, the fixed cost is spread over more units, causing the average fixed cost to also decrease. The decreasing average variable cost is reflected by advancement on technology such as machinery and computer technology. With the advancement of technology today the decreasing variable cost is also reflected by the labor by now machinery is replacing workers and or jobs. An example is the automotive industry twenty years ago was constructing automotives with workers and today is constructing automotives with robots. By buying new technology and hiring fewer workers a small firm will receive more production of units on average. The amount

of work and time required per unit of the output decreases, which decreases the average variable cost.

The average total cost, which is the total of the average fixed cost and the average variable cost, will also decrease by when the output increases by the new technology and spreading the fixed cost. By advancement of technology for small quantities of output, the average variable cost decreases as output increase, because of the new technology increased its production with more output with less time and human labor. Spreading the fixed cost of a small amount of output by "one unit increase in output reduces average fixed cost by a large amount because the fixed cost is pretty "Thick", being spread over just a few units of output." (O'Sullivan)

When a firm has finally reached the point where there is a new advancement of technology that is out on the market being used by other firms and the firm continues to increase the output, the average variable cost increases because of diminishing returns. Diminishing returns is as one input increases and other inputs are fixed then the output increases at a decreasing rate. With the spreading of the fixed cost continuing, it pulls down the average total cost. Also the diminishing returns and