Other mistake: When Iron Man and Iron Monger are fighting, Iron Man catches the SUV, and you can see the family inside the car. Although the car is completely vertical, the hair of the people in the car seems to defy gravity.
Continuity mistake: In the scene where Tony Stark is in the cave building his mini arc reactor He tells the Dr. what it is, then the scene cuts to Tony laying down the papers for the Mark 1 and you can see the glow of the arc reactor in his chest. Immediately after that the scene cuts to the terrorists tv monitor and seeing the Dr. putting in the new arc reactor.
Chosen answer: It was basically a prototype made from, to quote Stane, "a box of scraps." It was not strong enough to last, especially when it came to powering Tony's high tech armor armor upgrades.
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