A constant cost industry is an industry where the long supply curve is horizontal at the constant (average) cost of production. This doesn't mean the total cost in the industry does not change but the average cost of all firms in the industry stays constant. This is made possible by identical firms entering and exiting the industry.

If the demand for a product increases, the industry will no longer be in the long run since some firms will start making an economic profit and the constant cost industry will no longer exist. As usual, the increase in demand will only result in a short period of economic profit since more firms will enter the industry to get some of the profit. In summary, a constant cost industry is an industry where the average cost of a product is constant.

This is similar to a pure market, where every firm is selling the same thing and has on average the same cost. An example of this would be the cucumber market, which is what we used in class. Here is a "cucumber song" youtube video to help you remember it.

Sample Question:
True or False: If the TOTAL cost in an industry fluctates, the industry is never a constant cost industry.

[[http://academic.wsc.edu/faculty/chparke1/pclongindustrycc.ppt#256,1,Competitive Industry in the Long Run|ppt on constant cost industries]]


For another good link check these Oxford Journals

False, if the average total cost changes then it is no longer constant but the total can change and it still can be constant if the atc remains
the same!

For a pictoral representation of constant cost, look below to the curve labeled S1=AC=MC
external image image061.gif