Table 14.1 was constructed under the assumption that all firms in the industry are identical.
A: Suppose that all firms in an industry have U-shaped long run average cost curves.
(a) Leaving aside the column labeled “Firm Output”, what would change in the table if firms have different cost structures — i.e. some firms have lower marginal and average costs than others?
(b) Industries such as those described in (a) are sometimes called increasing cost industries com- pared to constant cost industries where all firms are identical. Can you derive a rationale for these terms?
(c) It has been argued that, in some industries, the average and marginal costs of all firms decline as more firms enter the market. For instance, such industries might make use of an unusual labor market skill that becomes more plentiful in the market as more workers train for this skill when many firms demand it. How would the long run industry supply curve differ in this case from that discussed in the text as well as that described in (a)?
(d) Industries such as those described in (c) are sometimes referred to as decreasing cost industries. Can you explain why?