LongRun Industry Supply Why does the longrun industry supply

(Long-Run Industry Supply) Why does the long-run industry supply curve for an increasing-cost industry slope upward? What causes the increasing costs in an increasing-cost industry?

Solution

An increasing cost industry is one in which the expansion of output leads to higher long-run average production costs. In this condition or scenario the long-run supply curves slopes upwards. Usually a supply curve will be sloping upward when more suppliers come forward to play in the market due to increasing prices.

Further, in order to grab the market share many competing industries will try to produce an alternate to the existing product. This will cause an increase in the marginal cost of the products. For every product produced there will be an increase in the marginal cost.

So, in the long run as price increases, more and more firms come forward to to produce more product since the price will be greater than the marginal cost. Hence, the supply curvewill start sloping upwards.