Suppose fixed costs fall in a monopolistically competitive industry. How would this industry adjust in the short and long runs?

    Suppose we are considering nightclubs in a large metropolitan area where property rental rates in the area where nightclubs favor have fallen. This would be a fixed cost since rental rates don't typically reflect the number of nightclub patrons but instead are usually set for a period of a year or more. This reduction is shown by the shift in total costs to ATC2.

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