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♪ [music] ♪ - [Alex] Okay -- this talk is going to be a bit more involved. What were going to show is how a constant cost industry generates a flat supply curve. Lets begin. A constant cost industry is one where its very easy to expand output without pushing up costs. So for example, pencils, rutabagas, domain name registration -- these are all constant cost industries. Think about pencils. We can easily increase the supply of pencils by quite a bit without pushing up the cost of producing pencils. Why not? Well, what do we need to produce more pencils? We need more wood, we need more graphite, we need more rubber. However, wed need just a little bit more wood relative to the total world supply of wood. Just a little bit more graphite relative to the world supply of graphite. And just a little bit more rubber relative to the world supply of rubber. In other words, we can increase the number of pencils produced, but only increase the demand for the inputs by a small and non-appreci
