As shown by the shaded area below, firms will be incurring losses (negative profits) in the short run due to the increase in fixed costs.
27. Again considering a perfectly competitive industry for which property taxes increased, the profits earned in the short run by firms after the property tax increase will:

1. be identical to those earned before the increase since they still produce where P=MC. Even though production and price haven't changed, total costs (due to fixed costs) have increased causing short run losses.
2. be slightly higher as firms increase price. Prices don't change in the short run, only total costs (due to fixed costs) have increased causing short run losses.
3. be negative since production costs rose but price did not.
4. be zero since price and cost will rise exactly the same amount. Even though production and price haven't changed, total costs (due to fixed costs) have increased causing short run losses.
5. still be greater than zero, but slightly lower than before. It isn't possible that a cost increase would increase short run profits.

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