Decreasing-Cost Industry is III compatible with Perfect Competition
In case of a decreasing-co t industry, even if there is competition to start with, competition will gradually disappear resulting a monopoly or oligopoly (a few monopolists). Suppose initially there is a large number of firms ill the industry. There will be a tell dc for them to expand to take advantage of economies of scale, resulting m lower and lower average costs as the scale of output I. enlarged. But all firm” arc not equally efficient and quick enough to realist the economics or scale.  c who are lclt behind in the 1)Ice have ultimately to drop out. Bigger firms keel’ driving down the prices, till only a cwt survive, resulting ill oligopoly, or only line firm. survives, and a monopoly is established. illustrates this. We see here that average cost curve t\C declines very sharply up to its point or intersection with the demand curve . The marginal cost curve MC lines below tC over this runge of output. Me cuts l)l J at E where price EM’ is lower than average cost E’ M’. At this point, total cost (OM’ x E1\1 ‘) exceeds total revenue lOM’ x EM ‘), therefore, losses arc incurred. But few firms will have the endurance tll reach this point. Long before. most of them would have dropped out. The survivor. the monopolist, would restrict output to OM uncharge (= MQ2) price, and make a harul stuck prolit or “I QI Q, P2 • which is measured hy the cxc cvs (If rev nucl (OM x Of’.,) over (OM x 01’1)’ If the peof iC were such that after declining. it remained constant over a large part or the output. it will permit a fair number of firms III continue and an oligopoly will be the result