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As always we begin our analysis with our industry in long
run equilibrium as shown to the right. Suppose the industry we
are considering is the local diner industry, specifically restaurants
that are not part of national chains and that specialize in simple
inexpensive meals.
Suppose due to low levels of unemployment diners find that
they must increase the wages they are paying for short order cooks,
dishwashers and wait staff. Labor in such an industry is surely
a variable cost.
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