BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Imagine 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), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximising 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. PRICE AND COST PER UNT (Dollars per can) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 + 0.50 MC 0 0 ATC MR D 0.5 2.5 3.0 3.5 4.0 1.0 1.5 2.0 QUANTITY OF OUTPUT (Thousands of cans of beer) Monopoly Outcome Profit Loss ? Imagine that BYOB charges $2.75 per can. Your friend Alex 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.

BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Imagine 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), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximising 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. PRICE AND COST PER UNT (Dollars per can) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 + 0.50 MC 0 0 ATC MR D 0.5 2.5 3.0 3.5 4.0 1.0 1.5 2.0 QUANTITY OF OUTPUT (Thousands of cans of beer) Monopoly Outcome Profit Loss ? Imagine that BYOB charges $2.75 per can. Your friend Alex 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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