New Medium Enterprises claims the quality of its new system, HD VMD, is equal to Blu-ray’s but it costs only $199—cheaper than the $300 cost of a Blu-ray player. Chairman of the Blu-ray Disc Association says New Medium will fail because it believes that Blu-ray technology will always be more expensive. But mass production will cut the cost of a Blu-ray player to $90.
a. Explain how technological change in Blu-ray production might support the prediction of lower prices in the long run. Illustrate your explanation with a graph.
b. Even if Blu-ray prices do drop to $90 in the long run, why might the HD VMD still end up being less expensive at that time?