THE analysis of the effect of a change in cost upon the price of a single producer is at once simpler and more complicated than the analysis of the effect of changes in demand. It is simpler because an increase in marginal cost will always reduce output, and so, with a given demand curve, raise price, while, as we have seen, an increase in demand may either raise or lower price. It is more complicated because the change in cost may take many more forms than the change in demand. A change in cost which is the result of a change in technique will be likely to alter the whole shape and course of the cost curve, and a change which is due to an alteration in the price of one of the factors of production may lead to a change in technique. In order to simplify the problem we will suppose (following tradition) that an increase of cost comes about in the simplest possible way, for instance by the imposition of a tax of a constant amount per unit of output. The average and marginal cost curves will then both be raised uniformly by the amount of the tax, and there will be no change in the shape of the curves.
KeywordsMarginal Cost Demand Curve Average Cost Cost Curve Imperfect Competition
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