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Go back to the model with ?rm performance differences in a single integrated market. Now assume that a new technology becomes available. Any ?rm can adopt the new technology, but its use requires an additional ?xed-cost investment. The bene?t of the new technology is that it reduces a ?rm's marginal cost of production by a given amount.

a. Could it be pro?t maximizing for some ?rms to adopt the new technology but not pro?t maximizing for other ?rms to adopt that same technology? Which ?rms would choose to adopt the new technology? How would they be different from the ?rms that choose not to adopt it?

b. Now assume that there are also trade costs. In the new equilibrium with both trade costs and technology adoption, ?rms decide whether to export and also whether to adopt the new technology. Would exporting ?rms be more or less likely to adopt the new technology relative to nonexporters? Why?

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