Constant-Cost+Industry

Constant-Cost Industries In a constant cost industry, an increase of firms entering an industry does not affect the price of resources needed for that industry. That is, as more and more firms enter an industry, the costs of production remain //constant,// or the same. This is caused by an abundance of this firm's resources. Normally, when more firms enter an industry, the amount of resources decreases, and so, the costs of production industry increase (this is called an //increasing cost industry//). Graphically, this means that the entry or exit of firms does not shift the long run average total cost curve (average total cost does not change with the entrance or exit of firms). This happens because the demand for the resources of a constant-cost industry is relatively small compared to the total demand for these resources. One example of a constant-cost industry is the cucumber industry. As more farmers begin growing cucumbers (or many farmers stop), costs of production (land, fertilizer, labor, etc.) stay relatively the same.

Supply curve of a constant cost industry: As supply increased, so did demand, so price stayed the same. This happens in constant-cost industries.

Video: media type="youtube" key="HwADwl5jNzQ" height="344" width="425" This video shows an example of a //decreasing// cost industry. The costs of this solar panel company's costs of production decrease because of how cheap it is to produce at such a large scale. If at some point this company gets so huge that costs will just remain the same, this industry would become a //constant// cost industry.

Practice Problem: //Answer at bottom of page// Which way does the ATC curve of a constant-cost industry shift in the long run with the addition of many new firms? a. left b. It doesn't move c. right

Links for more information: [|Definition] This site gives a very basic definition of a constant-cost industry. [|Explanation] This website gives a detailed explanation of how constant cost industries arise. [|Relation to Equilibrium] This page relates long-run equilibrium with constant-cost industries

Answer to practice problem:
 * b. The ATC cost doesn't move at all because costs remain //constant.// The costs don't change ever, even with the addition of more firms to an industry.////