Let's consider a perfectly competitive market . Consider that the marginal and average costs are equal. At the initial equilibrium, the price is P1, the marginal cost is MC1and quantity is Q1. The impact of the process innovation generates a fall in costs to AC2= MC2. Assuming that there is no patent system and the economy remains perfectly competitive, a process innovation means that:

Select one:

a.

the price to consumers will fall and the innovative firm will gain market power

b.

the price to consumers will increase due to market power gained by the innovative firm

c.

the price to consumers will fall and the market power of the will remain the same