Question

when a technology improvement increases the output per employee, then the cost per unit of output will

a. decrease

b. increase

c. not change

d. become negative

Answer 1

The answer is option a. When an improvement in the technology increases the output per worker, the cost per unit will decrease. Technology leads to more efficiency along with an increase in the productivity of the worker. This will lead to a reduction in the cost per unit for the firm.

Option b is incorrect because it is not possible for an improvement in technology to increase costs. If this was the case, firms would not be investing in research to get access to better technology. Option c is also incorrect for the same reason that firms would not initiate technological progress if it did not change the costs. Option d is incorrect because it is not possible for the costs to become negative. Costs of a firm are always positive because there are costs other than just the costs incurred which technology can reduce, like cost of raw material or wages.