In his 2012 book Economics is Everywhere Dan Hamermesh describes a recent development in the radiology industry and the dramatic effect on the cost structure of firms in the industry from that...

In his 2012 book Economics is Everywhere Dan Hamermesh describes a recent development in the radiology industry and the dramatic effect on the cost structure of firms in the industry from that development. The main development has been electronic storage and transmission of X-ray images. This development has meant that radiology firms no longer need large storage spaces for old X-ray images or to hire couriers to carry the X-rays from their headquarters to doctors’ clinics. a How are fixed costs and short-run marginal costs of supplying radiology services likely to differ between production methods without (‘old method’) and with (‘new method’) computer storage and online transmission of X-ray images? b Assume that the market for radiology services is perfectly competitive. Suppose that the industry is initially in long-run equilibrium with all firms using the old method of production. Then the new method of production becomes available. i Describe the process of adjustment in the industry from the initial longrun equilibrium to a new long-run equilibrium where firms are using the new method of production. ii How does the new long-run equilibrium differ from the initial long-run equilibrium? Specifically, what is the effect on the market equilibrium price, market quantity traded and the quantity supplied per firm?