To the right we show a monopolist producing the profit maximizing level of output P*, Q*. At this price/output combination, MR = MC and profits are equal to the shaded area.

    How will this firm respond to a change in variable costs? Such costs can rise because the price the firm must pay for one or more variable inputs rises, or they can change because one or more variable inputs becomes less productive. Likewise, variable costs fall either when the price of a variable input falls or a variable input becomes more productive.

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