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Dialogue: 0,0:00:00.89,0:00:05.54,Default,,0000,0000,0000,,♪[music]♪
Dialogue: 0,0:00:09.17,0:00:12.92,Default,,0000,0000,0000,,- Today we're going to wrap up our\Ndiscussion of entry, exit and supply
Dialogue: 0,0:00:13.10,0:00:17.89,Default,,0000,0000,0000,,curves by talking briefly about the\Nfascinating case of the decreasing cost
Dialogue: 0,0:00:18.07,0:00:28.41,Default,,0000,0000,0000,,industry. What's important and interesting\Nabout decreasing cost industries is that
Dialogue: 0,0:00:28.59,0:00:32.69,Default,,0000,0000,0000,,we think that they explain clusters. So if\Nyou look around the world, you'll see
Dialogue: 0,0:00:32.87,0:00:37.98,Default,,0000,0000,0000,,places like Dalton, Georgia, known as the\NCarpet Capital of the world, because about
Dialogue: 0,0:00:38.16,0:00:44.58,Default,,0000,0000,0000,,90% of the world's manufactured carpet is\Nmade in this one small town in Georgia. Or
Dialogue: 0,0:00:44.76,0:00:49.89,Default,,0000,0000,0000,,think about Silicon Valley for computer\Ntechnology or Hollywood for movies, or how
Dialogue: 0,0:00:50.07,0:00:56.13,Default,,0000,0000,0000,,about Hangji, China where they make three\Nto four billion toothbrushes a year in
Dialogue: 0,0:00:56.31,0:01:02.28,Default,,0000,0000,0000,,this one small town. Now what is it about\NHangji, China? Is there something special
Dialogue: 0,0:01:02.46,0:01:08.69,Default,,0000,0000,0000,,which makes this town just the ideal place\Nin all the world to make toothbrushes? No,
Dialogue: 0,0:01:08.87,0:01:13.50,Default,,0000,0000,0000,,not at all. It's not like mining diamonds\Nor gold. Toothbrushes could be made
Dialogue: 0,0:01:13.68,0:01:18.10,Default,,0000,0000,0000,,anywhere. Is there anything really special\Nabout Dalton, Georgia which makes it the
Dialogue: 0,0:01:18.28,0:01:26.26,Default,,0000,0000,0000,,ideal place for making carpets? No, so why\Nthen do we see these industrial clusters?
Dialogue: 0,0:01:26.44,0:01:33.30,Default,,0000,0000,0000,,The idea is this. Clusters evolve when\Ngreater output decreases local industry
Dialogue: 0,0:01:33.48,0:01:38.42,Default,,0000,0000,0000,,costs, and the best way to explain this is\Nto give kind of a stylized history which
Dialogue: 0,0:01:38.60,0:01:43.97,Default,,0000,0000,0000,,fits the facts for many of these clusters\Nsuch as the one in Dalton, Georgia. The
Dialogue: 0,0:01:44.15,0:01:50.08,Default,,0000,0000,0000,,idea is that the first firm locates more\Nor less randomly, however the first firm
Dialogue: 0,0:01:50.26,0:01:54.70,Default,,0000,0000,0000,,creates some local knowledge. In the case\Nof Dalton, Georgia, it was knowledge about
Dialogue: 0,0:01:54.88,0:02:00.50,Default,,0000,0000,0000,,how to produce carpets. It began to train\Nworkers in specialized techniques in order
Dialogue: 0,0:02:00.68,0:02:06.12,Default,,0000,0000,0000,,to produce carpets. Some input suppliers\Nfor the backing of the carpet, for example,
Dialogue: 0,0:02:06.30,0:02:12.27,Default,,0000,0000,0000,,also began to locate in Dalton Georgia. So\Nthere were advantages which began to
Dialogue: 0,0:02:12.45,0:02:19.83,Default,,0000,0000,0000,,develop in Dalton, Georgia simply because\None firm was there already. A second firm
Dialogue: 0,0:02:20.01,0:02:26.17,Default,,0000,0000,0000,,looking around the country and deciding\Nwhere to locate then chooses to locate in
Dialogue: 0,0:02:26.35,0:02:30.58,Default,,0000,0000,0000,,Dalton, Georgia next to the first firm,\Nbecause that's where the specialized
Dialogue: 0,0:02:30.76,0:02:36.15,Default,,0000,0000,0000,,inputs already exist. That's where there's\Nsome workers, which already understand the
Dialogue: 0,0:02:36.33,0:02:42.35,Default,,0000,0000,0000,,technology, can be more easily found. Once\Nthe second firm does that, it contributes
Dialogue: 0,0:02:42.53,0:02:49.95,Default,,0000,0000,0000,,to the local knowledge. And the third firm\Nlooking around also now finds that costs
Dialogue: 0,0:02:50.13,0:02:53.77,Default,,0000,0000,0000,,are even lower in Dalton, Georgia than\Nthey are elsewhere and the process
Dialogue: 0,0:02:53.95,0:02:59.42,Default,,0000,0000,0000,,continues. You can think about this as a\Nvirtuous circle. Output increases with the
Dialogue: 0,0:02:59.60,0:03:05.55,Default,,0000,0000,0000,,first firm. That produces some decreases\Nin cost, cost fall. That increases entry
Dialogue: 0,0:03:05.73,0:03:12.22,Default,,0000,0000,0000,,as other firms come into that area to take\Nadvantage of those lower costs. And that
Dialogue: 0,0:03:12.40,0:03:16.89,Default,,0000,0000,0000,,increases output and the process\Ncontinues. Of course the process doesn't
Dialogue: 0,0:03:17.07,0:03:22.37,Default,,0000,0000,0000,,continue forever. We don't find cost going\Nto zero, but the process can continue long
Dialogue: 0,0:03:22.55,0:03:27.45,Default,,0000,0000,0000,,enough so that Dalton, Georgia gets an\Noverwhelming advantage. So many firms
Dialogue: 0,0:03:27.63,0:03:33.25,Default,,0000,0000,0000,,locate in Dalton, Georgia producing\Ncarpets that it would be crazy to produce
Dialogue: 0,0:03:33.43,0:03:38.26,Default,,0000,0000,0000,,carpets anywhere else, because Dalton,\NGeorgia is where you can easily find the
Dialogue: 0,0:03:38.44,0:03:43.26,Default,,0000,0000,0000,,workers, where you can easily find the\Nknowledge, where the suppliers understand
Dialogue: 0,0:03:43.44,0:03:48.95,Default,,0000,0000,0000,,the business. In Dalton, Georgia, even the\Ncommunity colleges teach the techniques
Dialogue: 0,0:03:49.13,0:03:54.79,Default,,0000,0000,0000,,needed in order to produce carpet. So\Nthese virtuous circles can generate
Dialogue: 0,0:03:54.97,0:03:59.51,Default,,0000,0000,0000,,decreasing costs. Okay, I'm not going to\Nsay anymore about that. I'm going to leave
Dialogue: 0,0:03:59.69,0:04:02.31,Default,,0000,0000,0000,,it briefly for today.\NIf you do want to learn more, I've
Dialogue: 0,0:04:02.49,0:04:10.10,Default,,0000,0000,0000,,provided a bonus lecture which is from\NMRUniversity on international trade,
Dialogue: 0,0:04:10.28,0:04:15.60,Default,,0000,0000,0000,,particularly on trade and external\Neconomies of scale. I talk much more about
Dialogue: 0,0:04:15.78,0:04:19.84,Default,,0000,0000,0000,,these clusters and their influence on\Ntrade in that video, which you'll also
Dialogue: 0,0:04:20.02,0:04:26.59,Default,,0000,0000,0000,,find in your course materials. Okay, let's\Nsum up. So in this chapter, we've really
Dialogue: 0,0:04:26.77,0:04:32.10,Default,,0000,0000,0000,,done two things. First, based upon profit\Nmaximization in a firm's cost curves,
Dialogue: 0,0:04:32.28,0:04:37.28,Default,,0000,0000,0000,,we've shown how a firm decides how much to\Nproduce and also when to enter or exit
Dialogue: 0,0:04:37.46,0:04:42.88,Default,,0000,0000,0000,,an industry. Second, based upon those\Nproduction decisions, we've shown how a
Dialogue: 0,0:04:43.06,0:04:49.39,Default,,0000,0000,0000,,supply curve is built up founded upon the\Nchoices of firms in entering and exiting
Dialogue: 0,0:04:49.57,0:04:55.01,Default,,0000,0000,0000,,and how much to produce. And we've looked\Nat three particular cases, the constant
Dialogue: 0,0:04:55.19,0:04:59.99,Default,,0000,0000,0000,,cost industry with examples of domain name\Nregistration of spoons or waiters, or
Dialogue: 0,0:05:00.17,0:05:06.74,Default,,0000,0000,0000,,rutabagas has a flat supply curve. Costs\Ndon't change as output of the industry
Dialogue: 0,0:05:06.92,0:05:12.84,Default,,0000,0000,0000,,changes and so the supply curve is flat.\NThe increasing cost industry - oil, steel,
Dialogue: 0,0:05:13.02,0:05:18.57,Default,,0000,0000,0000,,nuclear physicists, costs increase, industry\Ncost increases, output increases, and as a
Dialogue: 0,0:05:18.75,0:05:24.69,Default,,0000,0000,0000,,result, the supply curve increases. And\Nfinally the uncommon but important case of
Dialogue: 0,0:05:24.87,0:05:30.79,Default,,0000,0000,0000,,a decreasing cost industry where at least\Nover some range and in a particular
Dialogue: 0,0:05:30.97,0:05:37.62,Default,,0000,0000,0000,,location cost can fall with increased\Nquantity, and how this type of cost
Dialogue: 0,0:05:37.80,0:05:42.57,Default,,0000,0000,0000,,structure generates clusters, clusters\Nlike Dalton, Georgia, like Silicon Valley
Dialogue: 0,0:05:42.75,0:05:47.66,Default,,0000,0000,0000,,and Hollywood, and so forth. Okay, that's\Nit. Thank you.
Dialogue: 0,0:05:47.84,0:05:53.67,Default,,0000,0000,0000,,- [Announcer] If you want to test yourself, \Nclick, "Practice Questions," or if you're
Dialogue: 0,0:05:53.85,0:05:59.52,Default,,0000,0000,0000,,ready to move on, just\Nclick, "Next Video."
Dialogue: 0,0:05:59.61,0:05:59.61,Default,,0000,0000,0000,,♪[music]♪