Constant-Cost Industry Homework Help

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A constant- cost industry is an industry where its long run supply curve is horizontal so productivity expands and price and other factors remain invariable. The internal economics and diseconomies perform in such a balancing condition that it does not affect industry’s expansion and contraction.  Hence, the cost and price of resources remain unaffected at that time. So there exists a constant cost in the long run.

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Explanation about the subject topic

In this economic condition, firms cannot earn much profit. The marginal revenue is equal to marginal cost which is same as average total cost of the firm. Consumer’s demand is perfectly elastic in nature in this condition. So with the enhancement of public demand for the product, price of that product is increased by default. For this reason, existing firm expand their production to meet market demands. Many new firms also take entry in the market in this situation.

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In this mentioned economic situation, many existing firms exit from the market to avoid risk as there is a chance of loss. But all the firms have same types of cost curve no matter how many new firms take entry or how many old firms are exit.As the production of existing firm is increased and new firm also adds their production to meet customer’s demand hence, supply of the product also increased in the market and price again come down at its old equilibrium point.

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