Long Run Equilibrium for Typical Firm and Industry - Zero Profits    Again, starting from long run equilibrium as shown, we consider a reduction in variable costs.

   While it is clear that variable costs can drop because firms have to pay less for variable inputs, it can't be stressed enough that an increase in productivity of a variable input also reduces its costs. This important point is often overlooked or misunderstood.

   Whatever the reason for the reduction in variable costs, let's examine the short run and long run adjustments to the new equilibrium.

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