Question

What kind of industry is the market for old car parts: An increasing cost industry, a constant cost industry, or a decreasing cost industry? How can you tell?

Answer 1

Answer: Decreasing cost industry.

If people reuses old cars over long time, the more and more firms producing old car parts will enter the market. As a result the supply of old car parts will rise. So in the long-run, the higher supply will reduce the price of car parts.The increase in the number of firms in the industry also reduces the production cost and industry experiences economies of scale. So the old car parts market is a decreasing cost industry market.

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