Increasing 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 increase as industry output increases.

What industries have increasing costs?

  • Any industry where it is difficult to exactly duplicate inputs (e.g., oil, copper, coffee, nuclear industries)
  • Any industry that buys a large fraction of the output of an increasing cost industry
Upward sloping supply curve

Tabarrok illustrates that the supply curve will be upward sloping with a two-firm example.

IncreasingCost1Practice questions

From http://www.mruniversity.com/node/264285, accessed 7 May 2016.

  1. What is the least common cost structure for an industry?

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: Increasing Costs (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/profit-maximization-average-cost, 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: Increasing Costs (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/profit-maximization-average-cost, accessed 7 May 2016.