Econ 281 Chapter9c - If a firm desires to increase...

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1 If a firm desires to increase production, it must purchase more inputs If we assume that the market for inputs is a perfectly competitive market, one industry’s input choices have no effect on market price A CONSTANT COST INDUSTRY is an industry where changes in output do not affect the price of inputs
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2 -Demand increases to D 2 , Price rises to P 2 -New firms enter, Supply increases to S 2 , lowering price to P 1 Typical Firm               Market D 1 S 1 SAC SMC P 1 q Q $/unit $/unit P 2 D 2 LS
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3 Industry-specific inputs are scarce inputs used primarily by one industry -ie:Plutonium is only used in the nuclear industry Changes in production will have an impact on the market for industry-specific inputs An INCREASING COST INDUSTRY is an industry where increases in output increase the price of inputs
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4 -Demand increases to D 2 , Price rises to P 2 -New firms enter, Supply increases to S 2 , lowering price to P 3 and increasing costs Typical Firm               Market D 1 S 1 SAC 1 SMC 1 P 1 q Q $/unit $/unit P 2 P 3 D 2 LS
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5 Some industries require a small amount of an expensive input -ie: Blue Ray CD Drive
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