Constant-cost industry refers to an industry where input prices do not change when industrial output changes. One reason is industry demand for input resources only covers a small portion of the total demand for these resources. Constant costs also occur when an increase in demand does not affect production costs.
In this industry, supply increases as much as an initial increase in demand. Hence, prices return to their original levels in the long run. As a result, the long-run supply curve is horizontal (perfect elastic) because the cost curves of each company are unaffected by changes in industrial output.
Examples of constant-cost industry
Examples of constant-cost industries are the pencil industry and internet storage space. As more companies enter the pencil industry, the demand for wood to produce pencils increases. However, because the pencil industry covers a small portion of wood demand, the price of timber is unchanged.
Likewise, as Internet users continue to grow, there is an increase in demand for storage space. However, because storage space is relatively large to meet the entire market, storage space costs do not go up. As a result, the long-run supply curve is horizontal.
