THE NATURE OF THE RESEARCH-INDUCED SUPPLY SHIFT

Differences among firms in a competitive industry can affect the shape of the industry supply curve. It is necessary to know how both produc tion costs and rents are affected by research. Industry response to re search will be different depending upon whether entry occurs. If the e ffect of entry is ignored, then the price decline from research will b e overstated. Industry marginal returns can be positive with purely yi eld-increasing research, even when industry demand is inelastic. Stand ard formulas for calculating producer surplus based on linear industry supply and demand curves are strictly valid only if the analysis is r estricted to short-run equilibrium behaviour.