When the demand change how industry operate under increasing cost, decreasing cost and constant cost in...

When the demand change how industry operate under increasing cost, decreasing cost and constant cost in perfect competition. Draw and explain

Expert Solution

In an increasing-cost industry, average total costs (unit costs) increase as output increases, and firms enter the industry; they decrease as output decreases, and firms exit the industry. If market demand increases for a good produced by firms in an increasing-cost industry, price will initially rise and then finally fall to a level above its original level.

In a constant-cost industry, average total costs (unit costs) do not change as output increases or decreases when firms enter or exit the market or industry. If market demand increases for a good produced by firms in a constant-cost industry, price will initially rise and then will finally fall to its original level.

In a decreasing-cost industry, average total costs (unit costs) decrease as output increases, and firms enter the industry; they increase as output decreases, and firms exit the industry. If market demand increases for a good produced by firms in a decreasing-cost industry, price will initially rise and then finally fall to a level below its original level.

Rahul Sunny answered 2 years ago

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