3. 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 profitmaximizing 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. /'\\ k3! 4.00 "I- . 3.50 Monopoly Outcome 3.00 E g f 2'50 Prot 3 ATC in E El u.| 150 Loss 9 0: [L 1.00 0.50 MR D O l l | | i l l 0 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 Chris 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 Chris is correct. Price Quantity Demanded Total Revenue Total Cost Profit (Dollars per bottle) (Cans) (Dollars) (Dollars) (Dollars) 2.00 V V :l 2.25 V ' :' Given the earlier information, Chris V correct in his assertion that Lagatt Green should charge $2.25 per bottle. Suppose that a technological innovation decreases Lagatt Green's costs so that it now faces the marginal cost (MC) and average total cost (ATC) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and moving the MC curve. Place the black point (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. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing 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. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. /_\\ K31 4.00 -- --|- I 3.50 Monopoly Outcome 3.00 1,? g 250 76 ' Prot 9. E g 2.00 m 8 E! E 150 Loss 0: ATC [L 1.00 0.50 - MC \\ MR D 0 I I I I . I I 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 QUANTITY (Thousands of bottles of beer) 6. Rent seeking The following graph shows the demand, marginal revenue (MR), and marginal cost (MC) curves for a singleprice monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the protmaximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the prots earned by the monopolist. /'\\ K3; a: Monopoly Outcome Ti? 10 o E 5 Monopoly Prots 3 \"I