I Distinguish among decreasing-cost, constant-cost, and increasing cost industries and describe the long-run supply of each

Question 1

An increase in demand that results in an increase in the market price (increasing cost industry; LRS curve upward slope; higher ATC (prices rise or quality deteriorates)

Answer 1

SR effect (all firms earn positive econ profits when the market price rises)

Firms enter; Demand for productive inputs increases; Market price prod. input increases; Increasing-cost industry (also can result from the reduction in the quality of inputs as production expands.

Ex: Oil - the costs of finding and producing a barrel of oil increase as more and more is produced

Question 2

Resource prices fall as the industry expands; Decreasing-cost industry; LRindustryScurve downward sloping prices rise upward slope, prices fall downward slope, duh!!

Answer 2

An industry like tech, where manufacturing cost of inputs fall because Economies of scale in the production of components reduced prices and the ATC for electronic manufactures, and prices fell each year as a tech industry grows to replace the conventional tech.

Question 3

Input prices neither increase or decrease; Constant cost industry; Demand curve is perfectly elastic at min avg cost

Answer 3

Ex, paper..

Question 4

Long-run supply of decreasing cost (LR supply slope is positive)

Answer 4

Initial increase in market demand increases both price and output in SR, over time increases in market price produce econ profits; firms enter; firms expand; supply expands: Decreasing Cost-industry; Equilibrium price falls with industry growth

Question 5

Long-run supply of increasing cost (LR supply slope is negative)

Answer 5

Initial increase in market demand increases both price and output in SR over time increases in market price produce econ profits; firms enter; firms expand; supply expands: Increasing Cost-industry; Equilibrium price rises.

Question 6

Long-run supply of constant cost (perfectly elastic LR slope)

Answer 6

Initial increase in market demand increases both price and output in SR over time increases in market price produce econ profits; firms enter; firms expand; supply expands: Constant-Cost Industry; price returns to the initial level at the min LRATC of a representative firm