Input costs rise for every firm

Step by step

1. 1

   Start at the optimum, P = MC.

2. 2

   Wages rise across the industry. MC and AC shift up for every firm.

3. 3

   Each firm cuts output; at the old price many now make losses, setting up exit and a higher long-run price.

Where this shows up

Examiners ask this as: input cost firm, mc shifts up, supply shock firm level.