Finally, we consider how a perfectly competitive industry adjusts to a change in fixed costs. A change in fixed costs only affects the ATC curve. (Remember that marginal costs are variable costs.)
Notice, that in the short run a reduction in fixed cost doesn't alter the firm's behavior at all. Since MC doesn't shift, industry supply doesn't shift, and a reduction in fixed cost has no impact on demand. Since neither market price nor MC change, firm and industry output remain unchanged.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved