Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

. Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot

. Profit maximization and loss minimization
BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC
MC
), marginal revenue (MR
MR
), average total cost (ATC
ATC
), and demand (D
D
) for beer in this market.
Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss.
Monopoly Outcome
Profit
Loss
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
PRICE AND COST PER UNIT (Dollars per can)
QUANTITY OF OUTPUT (Thousands of cans of beer)
MC
ATC
D
MR
Suppose that BYOB charges $2.75 per can. Your friend Lorenzo says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB's profit.
Complete the following table to determine whether Lorenzo is correct. If BYOB is suffering a loss, enter a negative value for profit.
Price
Quantity Demanded
Total Revenue
Total Cost
Profit
(Dollars per can)
(Cans)
(Dollars)
(Dollars)
(Dollars)
2.75
3.00
Given the earlier information, Lorenzo correct in his assertion that BYOB should charge $3.00 per can.
Suppose that a technological innovation decreases BYOBs costs so that it now faces the marginal cost (MC
MC
) and average total cost (ATC
ATC
) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC
ATC
curve and moving the MC
MC
curve.
Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss.
Monopoly Outcome
Profit
Loss
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
PRICE AND COST PER UNIT (Dollars per unit)
QUANTITY OF OUTPUT (Thousands of cans of beer)
D
MC
ATC
MR
Y-Intercept: 4
Slope: -2

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_2

Step: 3

blur-text-image_3

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

Accounting Concepts And Applications

Authors: K. Fred Skousen, W. Steve Albrecht, James D. Stice, Earl K. Stice

7th Edition

0538876247, 978-0538876247

More Books

Students explore these related Accounting questions