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), 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-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. ? PRICE AND COST (Dollars per can) 4.00 3.50 + 3.00 2.50 2.00 1.50 1.00 0.50 0 MC 0 S 1 11 || i I I ATC 0.5 1.0 1.5 20 2.5 QUANTITY (Thousands of cans of beer) MR Price (Dollars per can) 2.50 3.00 3.0 3.5 (Cans) D 1,250 1,000 4.0 Suppose that BYOB charges $2.50 per can. Your friend Kevin 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 Kevin is correct. Quantity Demanded Monopoly Outcome Given the earlier information, Kevin is not $3.00 per can. Profit V Loss Total Revenue Total Cost (Dollars) (Dollars) 3,437.50 3,000.00 3,750.00 4,125.00 Profit (Dollars) correct in his assertion that BYOB should charge Suppose that a technological innovation decreases BYOB'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
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), 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-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. ? PRICE AND COST (Dollars per can) 4.00 3.50 + 3.00 2.50 2.00 1.50 1.00 0.50 0 MC 0 S 1 11 || i I I ATC 0.5 1.0 1.5 20 2.5 QUANTITY (Thousands of cans of beer) MR Price (Dollars per can) 2.50 3.00 3.0 3.5 (Cans) D 1,250 1,000 4.0 Suppose that BYOB charges $2.50 per can. Your friend Kevin 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 Kevin is correct. Quantity Demanded Monopoly Outcome Given the earlier information, Kevin is not $3.00 per can. Profit V Loss Total Revenue Total Cost (Dollars) (Dollars) 3,437.50 3,000.00 3,750.00 4,125.00 Profit (Dollars) correct in his assertion that BYOB should charge Suppose that a technological innovation decreases BYOB'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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Given the earlier information, Kevin is not correct in his assertion that BYOB should charge
$3.00 per can.
Suppose that a technological innovation decreases BYOB'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 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.
PRICE AND COST (Dollars per unit)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
MC
0
ATC
0.5
1,0
2.0
2.5
QUANTITY (Thousands of cans of beer)
1.6
MR
3.0
3.6
D
4.0
Monopoly Outcome
Profit
Loss
Transcribed Image Text: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), 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-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.
?
PRICE AND COST (Dollars per can)
4.00
3.50 +
3.00
2.50
2.00
1.50
1.00 +
0.50
0
MC
0
11
I
i
I
I
ATC
0.5
1.0
1.5
2.0
2.5
QUANTITY (Thousands of cans of beer)
MR
Price
(Dollars per can)
2.50
3.00
3.0
3.5
D
(Cans)
1,250
1,000
4.0
Suppose that BYOB charges $2.50 per can. Your friend Kevin 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.
Monopoly Outcome
Complete the following table to determine whether Kevin is correct.
Quantity Demanded
Profit
Given the earlier information, Kevin is not
$3.00 per can.
Loss
Total Revenue Total Cost
(Dollars)
(Dollars)
3,437.50
3,000.00
3,750.00
4,125.00
Profit
(Dollars)
correct in his assertion that BYOB should charge
Suppose that a technological innovation decreases BYOB'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 cupio
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