10.6 Long-Run Supply Curves

What defines a constant‑cost industry?

Entry or exit does not change resource prices or firms’ ATC curves.

What happens when demand increases? (constant-cost industry)

Price rises temporarily → firms enter → supply increases → price returns to original minimum ATC.

What happens when demand decreases? (constant-cost industry)

Price falls temporarily → firms exit → supply decreases → price returns to original minimum ATC.

What happens to long‑run output?

It changes (90k, 100k, 110k), but price stays $50.

Shape of the long‑run supply curve?

Horizontal (perfectly elastic).

What defines an increasing‑cost industry?

Entry raises input prices → firms’ ATC curves shift upward.

Why do costs rise when the industry expands?

Specialized inputs become more expensive as more firms demand them.

What happens when demand increases? (increasing-cost industry)

Firms enter → supply increases → ATC rises → new long‑run price is higher than before.

What happens when demand decreases? (increasing-cost industry)

Firms exit → input prices fall → ATC falls → new long‑run price is lower than before.

Example from the text?

90k at $45 → 100k at $50 → 110k at $55.

Shape of the long‑run supply curve?

Upward sloping.

What defines a decreasing‑cost industry?

Entry lowers input prices → firms’ ATC curves shift downward.

Why do costs fall when the industry expands?

Input suppliers gain economies of scale → component prices drop.

What happens when demand increases? (decreasing-cost industry)

Firms enter → supply increases → ATC falls → new long‑run price is LOWER than before.

What happens when demand decreases? (decreasing-cost industry)

Firms exit → suppliers lose economies of scale → input prices rise → ATC rises → new long‑run price is HIGHER than before.

Example from the text?

100k at $50 → 110k at $45 → 90k at $55.

Shape of the long‑run supply curve?

Downward sloping.