4. 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. PRICE (Dollars per bottle) 4.00 3.50 3:00 2.50 2.00 1.50 1.00 0.50 MC ATC MR 0 0 as to 15 20 25 QUANTITY (Thousands of bottles of beer) Price (Dollars per bottle) D 30 35 Monopoly Outcome Profit Loss Suppose Lagatt Green charges $2.00 per bottle. Your study partner Gabriel 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 Gabriel is correct. Quantity Total Revenue Demanded (Cans) (Dollars) imag 1 Total Cost (Dollars) Profit (Dollars)
4. 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. PRICE (Dollars per bottle) 4.00 3.50 3:00 2.50 2.00 1.50 1.00 0.50 MC ATC MR 0 0 as to 15 20 25 QUANTITY (Thousands of bottles of beer) Price (Dollars per bottle) D 30 35 Monopoly Outcome Profit Loss Suppose Lagatt Green charges $2.00 per bottle. Your study partner Gabriel 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 Gabriel is correct. Quantity Total Revenue Demanded (Cans) (Dollars) imag 1 Total Cost (Dollars) Profit (Dollars)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Given the earlier information, Gabriel
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 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.
PRICE (Dollars per unit)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
MC
MR
1.0
1.5 20 2.5
QUANTITY (Thousands of bottles of beer)
0
ATC
0.5
D
3.0
correct in his assertion that Lagatt Green should
3.5
4.0
Monopoly Outcome
Profit
Loss
image 2
Transcribed Image Text:4. 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.
PRICE (Dollars per bottle)
4.00
3.50
1.00
2:50
2.00
1.50
1.00
MC
ATC
MR
0
0 as 10 15 20 26
QUANTITY (Thousands of bottles of beer)
D
Price
(Dollars per
bottle)
2.00
2.25
30
35 40
Monopoly Outcome
Profit
Loss
Suppose Lagatt Green charges $2.00 per bottle. Your study partner Gabriel 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 Gabriel is correct.
Quantity
Total
Revenue
Demanded
(Cans)
(Dollars)
imag 1
Total Cost
(Dollars)
Profit
(Dollars)
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