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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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