Constant Cost

Production of many manufacturing items, such as textiles, can be expanded by merely duplicating factories, machinery. and labor. Producing 200,000 shirts per day simply requires that we do the same thing as we did when we were manufacturing 100,000 per day, but on a doubled scale. In addition, assume that the textile industry uses land, labor, and other inputs in the same proportions as the rest of the economy.

In this case the long-run supply curve SS in Figure 8-7 is a horizontal line at the constant” level of unit costs. A’ rise in demand from DD to D’D’ will shift the new intersection point to E, raising Q but leaving P the Same.

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