Innovation (Economics)

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  • The first successful use of a new product or method or the introduction of a new enterprise on a commercial or extensive scale. New products or services (product innovation) and new methods of production or distribution (process innovation) are usually the offshoot of invention.

    By introducing new products and processes, innovation becomes an engine of competition and productivity, which allows consumers to vary their choices and what they consume at a relatively cheaper cost.

    Innovation has the potential of endangering smaller firms with diseconomies of scale and less capital to compete, because larger firms, which can increase output at low per-unit cost, can sell their products at much lower prices that cannot be matched by less efficient firms.

    Firms that are adequately capitalized and with excess capacity are ...

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