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 ( MCMC ), marginal revenue ( MRMR ), average total cost ( ATC ), and demand ( DD ) for beer in this market.
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 ( MCMC ), marginal revenue ( MRMR ), average total cost ( ATC ), and demand ( DD ) for beer in this market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot
Transcribed Image Text:4.00
3.50
Monopoly Outcome
3.00
2.50
Profit
ATC
2.00
Loss
1.50
1.00
MC
0.50
D
MR
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
QUANTITY (Thousands of cans of beer)
Suppose that BYOB charges $2.50 per can. Your friend Sean 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 Sean is correct.
Price
Price
Quantity Demanded Total Revenue
Total Cost
Profit
(Dollars per can)
(Cans)
(Dollars)
(Dollars)
(Dollars)
2.50
3.00
Given the earlier information, Sean
v 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.
PRICE (Dollars per can)
Transcribed Image Text: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.
4.00
3.50
Monopoly Outcome
3.00
2.50
Profit
2.00
ATC
Los
1.50
1.00
0.50
MC
MR
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
QUANTITY (Thousands of cans of beer)
PRICE (Dollars per can)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education