Constant Cost Industry and Horizontal Supply

An industry's supply curve shows the relationship between the price of a good and the quantity supplied. In the long run, firms can adjust all their inputs, and new firms can enter or exit the industry.

Horizontal Long Run Supply Curve

A horizontal long run supply curve signifies that the industry can supply any amount of output at a specific, constant price. This occurs when the costs of production do not change as the industry expands or contracts its output level. Essentially, the price required to induce firms to produce more output remains unchanged.

Constant Cost Industry Characteristics

An industry with such a supply curve is defined as a constant cost industry. Key features include:

• Input prices (like wages or raw materials) are unaffected by the level of industry output.
• The cost per unit of output remains stable even when the industry produces more.
• An increase in demand leads to an increase in quantity supplied along the horizontal curve without a change in price.

Why Other Options Are Incorrect

• Increasing Cost Industry: Experiences rising input costs as output increases, leading to an upward-sloping long run supply curve.
• Decreasing Cost Industry: Benefits from falling input costs as output increases (due to economies of scale or technological advancements), resulting in a downward-sloping long run supply curve.
• Efficient Industry: This term broadly refers to an industry operating optimally but does not specifically define the shape of its long run supply curve.

Therefore, the industry whose long run supply curve is horizontal is the constant cost industry.