Decreasing cost industry

Decreasing cost industry
See also

The term of decreasing cost industry determines average total costs (unit costs) which increase as output decreases and decrease when output increases in the situation when firms exit and enter the industry properly. If market demand increases for the good produced by businesses in a decreasing cost industry so the price will inceptively rise and later will eventually fall to a level below it is the original level. The decreasing cost industry is described by a downward-sloping long-run supply curve.

During entering new firms with a decreasing cost industry so the input prices fall as output expands. The industry of a decreasing-cost is an industry where the expansion of industry output decreases the firm's cost curves by the entry of new firms. For example, when the production of electronic components expands so the price of computer chips might be lower. One of the reason might be that[1]:

  • major sales volume receive the suppliers to reach economies of scale and
  • inferior their input prices to businesses in the electronic component industry.

Decreasing cost industries are usually subsidized or regulated therefore allowing for a diversity of solutions to their pricing dilemma. Dams and waterways frequently charge a low or even zero price to provide wide use of the product, with taxes constituting the difference between revenues and costs. Moreover, electric utilities price their power under a diversity of regulatory strategies, frequently charging different rates for the same product to different customers. Through such price discrimination, there is achieved to the decreasing-cost industry a second-best solution. The total cost of production is reclaimed from those customers who are willing to pay the highest prices. Through charging other customers less (even as little as the marginal cost of produce), is guaranteed the wide social benefits. In consequence, the logic of economics suggests that in the production of raw data by faraway sensing is an effective solution for price discrimination. However, the logic of international relations contends against price discrimination. In consequence, the Land Remote Sensing Act requires to have from all the parties access to data on equal terms[2].

Increasing cost industry[edit]

Countertype is increasing cost industry which determines an industry where the average total costs increase as output increases and also decrease as output decreases when business exit and enter the industry properly [3].


  1. (A.P. Layton, T.J.C. Robinson, I.B. Tucker 2011)
  2. (R.D. Reischauer 1993)
  3. (R.A. Arnold 2007)


Author: Agnieszka Piwowarczyk