Entry, Exit, and Supply Curves: Constant Costs

What is a defining characteristic of a constant cost industry?

• It is difficult to expand output without increasing costs.

• It is easy to expand output without increasing costs.

• It primarily produces luxury goods.

• It experiences significant fluctuations in input prices.

Which of the following is an example of a constant cost industry?

• Housing construction

• Oil extraction

• Pencil manufacturing

• Diamond mining

Why does expanding output in a constant cost industry typically not lead to a significant increase in the price of its inputs?

• The industry uses very few inputs overall.

• The industry's demand for inputs is a small fraction of the total market supply for those inputs.

• Government subsidies are always in place to stabilize input prices.

• Technological advancements constantly reduce the cost of inputs.

What is the shape of the long-run supply curve for a constant cost industry?

• Upward sloping

• Downward sloping

• Vertical

• Flat (horizontal)

What happens to existing firms in an industry when market demand increases and prices rise in the short run?

• They decrease their output.

• They maintain their current output levels.

• They expand their output along their marginal cost curve.

• They exit the industry due to higher costs.

What effect do above-normal profits have on an industry?

• They cause existing firms to reduce production.

• They attract new firms to enter the industry.

• They lead to a decrease in market demand.

• They result in a decrease in product price.

When new firms enter a constant cost industry, what is the immediate effect on the market supply curve and product price?

• The supply curve shifts left, and price increases.

• The supply curve shifts right, and price decreases.

• The demand curve shifts right, and price increases.

• Both the supply and demand curves remain unchanged.

What is the shape of the long-run industry supply curve in a constant cost industry?

• Upward-sloping.

• Downward-sloping.

• Vertical.

• Flat (horizontal).