Explain what occurs when a new technology makes another one obsolete in terms of economic profit. Consider firm A to be an existing firm using the old technology. Firm B is the new firm with the new technology. Firm A earned positive profits for years, but with the entrance of Firm B, Firm As goods and services are no longer desired.
Assume that you are in the business of building houses. You have analyzed the market carefully, and you know that at a price of $120,000, you will sell 800 houses per year. In addition, you know that at any price above $120,000, no one will buy your houses because the government provides equal-quality houses to anyone who wants one at $120,000. You know that for every $20,000 you lower your price, you will be able to sell an additional 200 units. For example, at a price of $100,000, you can sell 1,000 houses, at a price of $80,000, you can sell 1,200 houses, and so on.