Compare the long-run supply curve for a constant-cost industry, a decreasing-cost industry, and an increasing-cost industry. Give an example with an explanation for each

Question

What will be an ideal response?

Answer 1

The long-run supply curve for a constant cost industry implies that expansion or contraction of production for firms in the industry does not influence the price of resources used to produce the good. This means a change in the market output will not influence the equilibrium price in the long-run. The app industry is an example of a constant-cost industry, as output increases the costs of the firms remains fairly constant.
In the case of a decreasing-cost industry firms experience lower costs as their industry expands. This implies that in the long run an increase (decrease) in the market output will decrease (increase) the market price. An example of an industry with decreasing-costs is the market for personal computers. As demand for personal computers increased, there was greater demand for resources. The increase in demand for those resources led their markets to achieve economies of scale, lowering their costs.
An increasing-cost industry is one which firms experience higher costs as their industry expands. An increase in resource prices is often the cause. An example of an industry with increasing-costs is the agricultural industry. There is a fixed amount of suitable farming land in the United States. As the amount of output increases farm land becomes more expensive, creating an up sloping long-run supply curve.