1. Profit maximization and loss minimizationLagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not ableprice discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginalrevenue (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 aprofit, 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.4.003.002.50ATC2.00X1.501.00MC0.00MR0PRICE (Dollars per unPrice(Dollars per bottle)2.002.25Given the earlier information, Jabrill4.003.503.0002.50Suppose Lagatt Green charges $2.00 per bottle. Your study partner Jabrill says that because Lagatt Green is a monopoly with market power, it shouldcharge the higher price of $2.25 per bottle in order to increase its profit.1.501.000.500.51.0 1.5 2.02.5 3.0 3.5QUANTITY (Thousands of bottles of beer)0MC0DSuppose that a technological innovation decreases Lagatt Green's costs so that it now faces the marginal cost (MC) and average total cost (ATC) givenon the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and movingthe MC curve.Quantity Demanded Total Revenue(Cans)(Dollars)Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green ismaking a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is sufferinga loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss.(?)ATC40MR+DMonopoly Outcome0.5 1.0 15 20 25 3.0 3.5QUANTITY (Thousands of bottles of beer)ProfitLoss4.0Total Cost(Dollars)correct in his assertion that Lagatt Green should charge $2.25 per bottle.(?)+Monopoly OutcomeProfit(Dollars)ProfitLoss

Given :BYOB charges $2 per canDarnell charges $2.25 per can

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 profit, 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 1.50 3.00 250 Monopoly Outcome Prof

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 profit, 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 1.50 3.00 250 Monopoly Outcome Prof

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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
profit, 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
3.00
2.50
ATC
2.00
X
1.50
1.00
MC
0.00
MR
0
PRICE (Dollars per un
Price
(Dollars per bottle)
2.00
2.25
Given the earlier information, Jabrill
4.00
3.50
3.00
0
2.50
Suppose Lagatt Green charges $2.00 per bottle. Your study partner Jabrill 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.
1.50
1.00
0.50
0.5
1.0 1.5 2.0
2.5 3.0 3.5
QUANTITY (Thousands of bottles of beer)
0
MC
0
D
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.
Quantity Demanded Total Revenue
(Cans)
(Dollars)
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 profit. 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.
(?)
ATC
40
MR
+
D
Monopoly Outcome
0.5 1.0 15 20 25 3.0 3.5
QUANTITY (Thousands of bottles of beer)
Profit
Loss
4.0
Total Cost
(Dollars)
correct in his assertion that Lagatt Green should charge $2.25 per bottle.
(?)
+
Monopoly Outcome
Profit
(Dollars)
Profit
Loss

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33) Kate's Great Crete (KGC) is a local monopolist of ready-mix concrete. Its annual demand function is Q=20,000 - 400P, where P is the price, in dollars, of a cubic yard of concrete and Q is the number of cubic yards sold per year. What is the difference between price and marginal revenue when KGC sells 5,000 cubic years of concrete per year? A) $12.50 B) $25.00 C) $37.50 D) $50.00
1
2. The demand and total cost functions for a monopoly firm are: Q(P) 20-0.5P TC(Q)=4-Q+0.5 Q² a) Derive the profit maximising Q₁, P, and compute the firm's profit p 'M' M b) Suppose instead a competitive industry where the MC curve is the competitive industry's supply function. Derive the competitive industry equilibrium P* and Q*. c) Drawing on a) and b), use a diagram and algebra to compare the monopoly industry and the perfectly- competitive industry outcomes in terms of a. equilibrium prices and quantities, b. economic efficiency (total economic surplus), and c. distribution in terms of consumer surplus and producer surplus
7. Comparing monopoly and perfect competition Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply curves (S= MC) in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. PRICE AND COSTS (Dollars per hot dog) 0.5 བྷྲ ༷ ྴ་ཤཱ་བྷ་ཛྙྰ་བླླ་ཤཱ་བ། 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.0 0 0 30 60 90 Perfect Competition S=MC D 120 150 180 210 240 270 300 QUANTITY (Hot dogs) PC Outcome Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume…
(a) Does a monopolistically competitive firm have an incentive to produce at the level of output that minimizes the average total cost at the long run equilibrium? Explain with a diagram. (b) Suppose CLP Holdings Limited is a natural monopolist with constant marginal cost. Draw a diagram to indicate the profit-maximizing level of output, the profit-maximizing price, and the size of the profit. If the government wants to increase the market efficiency through price regulation, would you suggest the government setting the price equal to the firm’s marginal cost or its average total cost? Explain in detail with the diagram in part (i).
6. A drug company has a monopoly on a new patented medicine. The product can be made in either of two plants. The total costs of production for the two plants (Plant 1 and Plant 2) are given by: TC₁(Q₁) = 100 TC₂(Q2) = 200 where 2 and 22 are the level of output produced by Plant 1 and Plant 2, respectively. The firm's estimate of demand for the product is given by P=20-3(Q+22) where P is the unit price of the product. (a) Suppose that this company is not able to price discriminate. What are the profit maximizing level of output produced by Plant 1 and Plant 2? (b) At what price will it sell the product?
MONOPOLISTIC COMPETITION 1. Suppose that the cost of production is given by the following function: CT = 100 + Q2 and that the demand is given by P = 80 - Q. a. Determine the level of maximization.b. Determine the value of CT and ITc. Check that the IMg = CMg CT (Total cost) IMg (marginal income) CMg (marginal cost) Algebraically if the demand curve in the monopoly is a function of quantity, the demand curve is a straight line. P = a - bQWhere a is the ordinate to the origin, b the slope and Q the quantitySo if IT = P x QWe have that (a - bQ) Q = aQ - bQ2IT = aQ - bQ2And therefore the marginal income is the derivative of IT or what is equal to the variation of total income between the variation of the quantity.Therefore the IMg = derive the quantity in the function aQ - bQ2IMg = a - 2bQ Consider these functions when conducting monopoly exercises.
3. Suppose a software monopolist faces two markets for its software, students and professionals. The demand curve of professionals is given by Qp = 200-2Pp and the demand curve by students is given by Qs = 150 - 3Ps. The firm's cost function is C(Q) = 400+5Q. (a) If the firm can price discriminate, what price should it charge in each market to maximize profits? How much profit does it earn? (b) If the firm cannot price discriminate, what price should it charge? Verify that it sells to both markets at this price. How much profit does it earn? Hint: If the firm cannot price discriminate, this means it must treat the two markets as a single combined market.
The graph shown represents the cost and revenue curves faced by a monopoly. 22 P3 P2 P1 PO MC ATC Q1 Q2 MR Which of the following statements is true? 1. The outcome in a monopoly market would be Q1, P1. II. The outcome in a perfectly competitive market would be Q2, P2. III. The efficient outcome is Q2, P2. Multiple Choice I and II only ○ I only II and Ill only I, II, and III b
1) With monopoly, we only specify long run cost functions because we are not as interested in the shut down decision and we don't have firm entry to compete away profit. Still, to make the math work, our monopolist cost functions often have fixed costs. Let's solve the following question: EagleSOFT has developed a computer program that will send UNT sports teams scores directly to purchaser's phones as text messages. Demand and total cost for the software company is described by the following equations: Demand: P = 70 -0.05Q, Cost: C = 4000 + - 10Q. a) What is the firm's level of output, the price they should charge, and their profit? b) What is the demand elasticity and Lerner index at the level of output?
None
3. A monopolist who is the exclusive producer of cricket bats in the UK faces a demand curve defined by P = 100 – 2Q and a short-run total cost curve of TC = 300 + 20Q. a. Given the above information, compute total revenue, marginal revenue, and marginal cost for this producer, and identify the optimal quantity, the optimal profit, and the equilibrium price. [10 marks] b. Considering the information from your answer to bullet point a., represent the monopoly market structure graphically. [5 marks]