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What Is a Decreasing-Cost Industry?

K.C. Bruning
By
Updated May 16, 2024
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A decreasing-cost industry is one in which the cost of an item declines as its production increases. The phenomenon is referred to as a downward-sloping, long-run supply curve. This is caused by the growth of an industry, which typically results in more competitors, less demand, and lower perceived value of the product. Depending on the nature of the business, decreasing-cost industry can either cause the decline of a company or simply be a part of its natural evolution.

One of the most common reasons for decreasing-cost industry is competition. When the market for a product expands, competitors will typically step in to meet increased demand. While existing companies may be able to charge a premium for brand recognition or perceived value due to experience, they will often need to lower prices at least somewhat in order to stay in business.

In some cases, decreasing-cost industry happens because an increase in production does not significantly affect the cost of producing the product. This is common with knowledge-based products such as software. It can also be a factor in the production of items which can be significantly improved with greater efficiency. Once the company has learned how to maximize its efforts, it can increase its customer base by lower prices.

Decreasing-cost industry may also be the result of a company’s decreasing cost of doing business. This can be due partly to the initial investment made by a company in start-up costs such as equipment, recruiting, and hiring. Once a company has reached a certain level of success, the costs related to these elements tend to drop. A company that has successfully produced a product for a certain period of time will often also have lower production costs. This is often because it has through trial and error developed the most efficient way of making and distributing the product.

Other types of industries include increasing-cost and constant cost. Increasing-cost industry happens when prices go up due to an increase in demand for manufacturer resources. This can include an increase in salary for employees whose skills are in demand and higher prices for inventory items that are in short supply. Constant cost industry is a situation in which increased demand does not affect the cost of production. This is commonly seen in areas such as the retail industry, where the entry of a new business does not tend to affect prices or employee salaries

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
K.C. Bruning
By K.C. Bruning
Kendahl Cruver Bruning, a versatile writer and editor, creates engaging content for a wide range of publications and platforms, including SmartCapitalMind. With a degree in English, she crafts compelling blog posts, web copy, resumes, and articles that resonate with readers. Bruning also showcases her passion for writing and learning through her own review site and podcast, offering unique perspectives on various topics.
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K.C. Bruning
K.C. Bruning
Kendahl Cruver Bruning, a versatile writer and editor, creates engaging content for a wide range of publications and...
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