Here is a real world example where the impact of having a structure of very high fixed costs, such as in steel production, can be very difficult to manage in tough economic times.  Normally when demand falls, prices also fall (recall the supply-demand curves from your Economics courses).  The problem for steel mills is that producing fewer units of steel causes them to have to spread their very high fixed costs over fewer units so they feel the need to actually raise prices so as not to lose money (or not to lose as much money at least).  Raising prices causes demand to fall further still and that could lead to some companies being eliminated from the marketplace which could cause prices to stabilize as the remaining producers are able to operate nearer to full capacity.

I think this is a great example of the impacts of fixed vs. variable costs structures that we have discussed in class.

“Unlike mill increases announced in recent years, this is obviously not driven by increasing global demand, but rather by fixed costs being proportioned across significantly lower demand,” the company said in a letter to customers.

Corporate News: Fixed Costs Chafe at Steel Mills — Capital-Intensive Producers Are Raising Prices Despite Weak Demand. Robert Guy Matthews. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 10, 2009. pg. B.1