Infant Industries
The possibility of a negatively slope long-run supply curve is believed to characterize some newly emerging, or “infant” industries. Initially, the costs of production
FIGURE 10-9 Decreasing Costs Result in a Negatively Sloped Long-Run Supply Curve Initially , the market is in equilibrium at P1, Q1. An increase in demand to D’ cause price to rise to P2 in the short run, and the typical firm produces q2 at a profit. This profit attracts new firms. If the entry of these new firms causes costs to fall, a set new cost curves might look like those in (b). With this new set of curves, market equilibrium is reestablished at P3, Q3. By connecting such points of equilibrium, a negatively sloped long-run supply curve LS is traced out.
Infant IndustriesThe possibility of a negatively slope long-run supply curve is believed to characterize some newly emerging, or “infant” industries. Initially, the costs of productionFIGURE 10-9 Decreasing Costs Result in a Negatively Sloped Long-Run Supply Curve Initially , the market is in equilibrium at P1, Q1. An increase in demand to D’ cause price to rise to P2 in the short run, and the typical firm produces q2 at a profit. This profit attracts new firms. If the entry of these new firms causes costs to fall, a set new cost curves might look like those in (b). With this new set of curves, market equilibrium is reestablished at P3, Q3. By connecting such points of equilibrium, a negatively sloped long-run supply curve LS is traced out.
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