If the cost of a variable input falls, or if an input becomes more productive (such as recently reported increases in labor productivity) the firms variable costs fall. We know that it standard supply and demand analysis a reduction in variable costs leads to an increase in output and a reduction in price. It seems likely that the same will happen in monopoly.

    Consider the graph to the right. The firm whose data are shown is maximizing profits (blue shaded area) by producing Q* units and selling at a price of P*.

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