Increasing Costs Form

Instructions and help about Increasing Costs

♪ [music] ♪ - [Alex Tabarrok] Now that we understand a firm's cos tcurves, and its entry and exit decisions, we're able to show how supply curves are actually derived from these more fundamental considerations. Let's take a closer look. The supply curve is built upon firm entry and exit decisions and the effect of these decisions on industry costs. And the key question is this, as industry output increases, what happens to costs? There are three possibilities. First, an increase in cost industry. That is industry costs increase with greater output. Second, constant cost industry. Industry costs are flat, they don't change with greater or lesser output. And finally a decreasing cost industry, industry cost falls with greater output. As we'll see, the first and second are quite common, the third is quite uncommon, but is nevertheless important and interesting in order to understand economic geography, which we'll come to a bit later. Let's show how the industry supply