The firm's average total cost curves fall. Average total costs are equal to average fixed costs plus average variable costs. As firms enter the market and produce substitute products, this firm's demand will fall and become more elastic. Reset parameters to their original levels. This is the result of an increase in the cost of variable inputs which causes both the marginal and average total costs to rise.
Profits are equal to total revenue minus total costs.
As the cost of variable inputs rise, total costs also rise, which decreases economic profits. The firm's average costs rise from ATC to ATC1. Average total costs are equal to average fixed costs plus average variable costs. As the cost of a variable input rises, the average variable costs also rise, which causes average total costs to rise. The firm's marginal costs rise from MC to MC1.