Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved
The graph to the right illustrates an increase in fixed costs
with a shift of average total cost to ATC2. This is what would occur if the firm's rent, property taxes,
or annual insurance premiums rose.
Notice that there is nothing the firm can do. The profit maximizing
level of output remains unchanged. Since variable costs didn't
change MC doesn't change and since demand didn't change MR doesn't change. So, when fixed costs rise the profit maximizing monopolist does not
alter output or price.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved