Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1 . Profit maximization and loss minimization Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed
1 . Profit maximization and loss minimization Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a prot, use the green rectangle (triangle symbols) to shade in the area representing its prot. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Place the black paint (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a prot, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. 4.00 "I- I 3.50 Monopoly Outcome 3.00 E g 2 0 .5 f Prot 3 6 9 DJ 1.50 L055 9 I [L 1.00 MC 0.50 MR D 0 iII o 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 QUANTITY (Thousands of bottles of beer) Suppose Lagatt Green charges $2.00 per bottle. Your study partner Taio says that because Lagatt Green is a monopoly with market power, it should charge the higher price of $2.25 per bottle in order to increase its profit. Complete the following table to determine whether Taio is correct. Price Quantity Demanded Total Revenue Total Cost Profit (Dollars per bo ttle) (Cans) (Dollars) (Dollars) (Dollars) 2.00 V V 2.25 V : [: Given the earlier information, T. V correct in his assertion that Lagatt Green should charge $2.25 per bottle. Suppose that a technological in necreases Lagatt Green's costs so that it now faces the marginal cost (MC) and average total cost (ATC) given on the following graph. Specific 1,500 echnological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and moving the MC curve. Place the black paint (plus symbol) on the following graph to indicate the profitmaximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its prot. 0n the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. PRICE (Dollars per unit) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.5 ATC D 1.0 1.5 2.0 2.5 3.0 QUANTITY (Thousands of bottles of beer) 3.5 4.0 Monopoly Outcome Prot H Loss

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Routledge To Global Political Economy Conversations And Inquiries

Authors: Ernesto Vivares

1st Edition

1351064525, 9781351064521

More Books

Students also viewed these Economics questions

Question

14. What does the acronym CALMR stand for, and what is its purpose?

Answered: 1 week ago

Question

Will other people benefit if I act according to this value?

Answered: 1 week ago