Constant Cost Industries

… a core concept in Economic Analysis and Atlas102

Click for MRU video

Click for MRU video

Concept description

Alex Tabarrok (reference below, video on right) shows how the supply curve is derived from individual firm entry and exit decisions in an industry where costs stay constant as industry output increases.

What industries have constant costs?

  • Any industry where easy to expand output without raising costs (e.g., pencils, rutabagas, domain name registration)

The implication is that the supply curve will be flat.

Flat supply curve

Tabarrok illustrates that the supply curve will be flat by examining the situation in a representative firm.

Constant2

Practice questions

From http://www.mruniversity.com/node/264309, accessed 7 May 2016.

  1. In the long run, constant supply curves are

Atlas topic, subject, and course

Producer Theory and Competition (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, Entry, Exit, and Supply Curves: Constant Costs (10-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-constant-cost-industry, accessed 7 May 2016.

Page created by: Ian Clark, last modified 7 May 2016.

Image: Alex Tabarrok, minute 0.14 of Entry, Exit, and Supply Curves: Constant Costs (10-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-constant-cost-industry, accessed 7 May 2016.