The only short run change is that firms are now suffering losses shown by the shaded area to the right. Profit maximizing price and output don't change in the short run since neither marginal revenue nor marginal cost have changed. We found the same results in other structures, firm's don't change price out output in the short run when only fixed costs change.

    Since firms are incurring losses in the long run some firms will leave the industry.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved