As always, we begin with an industry in long run equilibrium, as shown. Then we need to ask how the industry adjusts to a change in variable costs.
Remember that a change in variable costs shifts both the MC and ATC curves. Also, recall that the MC curve is the firm's short run supply curve (above average variable cost). This means that a change in variable costs shifts the MC or supply curve of every firm, leading to a short run shift in industry supply . A change in variable costs is the only way in which the industry supply curve can shift in the short run.
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