Entry, Exit, and Supply Curves: Decreasing Costs

What characteristic defines a decreasing cost industry?

• Costs increase as the industry's total output grows.

• Costs remain constant regardless of the industry's total output.

• Costs decrease as the industry's total output grows.

• Costs are unpredictable and fluctuate randomly with output.

Why do certain industries tend to form geographical clusters, such as Dalton, Georgia, for carpets?

• The region possesses unique natural resources essential for production.

• Government regulations mandate that these industries operate in specific locations.

• The initial establishment of a firm creates local knowledge and attracts input suppliers, reducing costs for subsequent firms.

• A lack of efficient transportation infrastructure forces companies to locate close to each other.

In a decreasing cost industry, what sequence of events describes the "virtuous circle" that leads to further growth and efficiency?

• Increased output leads to higher costs, which discourages new firms from entering the market.

• Increased output leads to lower costs, which attracts new firms, further increasing output.

• Decreased demand for a product leads to lower prices, which in turn increases the overall supply.

• Government subsidies reduce production costs, leading to an immediate increase in output without further market changes.

When plotted on a graph, what shape does the supply curve for a decreasing cost industry typically take?

• A horizontal line, indicating constant costs.

• An upward-sloping line, showing increasing costs with higher quantity.

• A downward-sloping curve that eventually turns upward, reflecting initial cost reductions followed by increases.

• A vertical line, suggesting that quantity supplied is fixed regardless of price.