(9) Increasing and Decreasing Cost Industries
Increasing Cost Industry, Decreasing Cost Industry, Long Run Supply Curve
This discusses what happens to cost as industries exand over time. It establishes that the standard cost analysis assumes constant input costs, but that this need not be the case. Three possibilities are examined regarding input costs as an industry expands: 1) they remain constant, 2) they rise, 3) they fall. These are identified as Constant Cost, Increasing Cost and Decreasing Cost Industries, respectively. These are illustrated using shifting short run supply and demand curves to derive a Long Run Supply Curve for each case.
Crane, Steven E., "(9) Increasing and Decreasing Cost Industries" (2011). Principles of Microeconomics. Paper 43.
Ability to distinguish between Increasing, Decreasing and Constant Cost Industies, and to explain the causes. Ability to derive and explain a Long Run Supply Curve.
Previous Cost Videos