I think your scenario is a good illustration of “finite inputs”, which I listed as one of five example ways in which the long term supply curve may not actually be flat (at the end of the original article).
While I think that finite supply is a very real force (that, if strong enough, would create significant long term price elasticity of supply as you claim), the other four examples I mentioned also seem very real to me, and it’s not obvious which ones win out for any particular industry.
If Cost always grew with industry size, products in big industries would always cost more than the same product from equivalent but smaller industries (where both supply and demand is reduced). Intuitively/anecdotally this doesn’t seem to be true; I think the most common reasons it’s not true are “gains to scale”.
I think your scenario is a good illustration of “finite inputs”, which I listed as one of five example ways in which the long term supply curve may not actually be flat (at the end of the original article).
While I think that finite supply is a very real force (that, if strong enough, would create significant long term price elasticity of supply as you claim), the other four examples I mentioned also seem very real to me, and it’s not obvious which ones win out for any particular industry.
If Cost always grew with industry size, products in big industries would always cost more than the same product from equivalent but smaller industries (where both supply and demand is reduced). Intuitively/anecdotally this doesn’t seem to be true; I think the most common reasons it’s not true are “gains to scale”.