Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed open even though she earned negative economic profits.
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Draw a correctly labeled graph for Joyce’s gas station during February and show each of the following.
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The profit-maximizing output and price, labeled QJ and PJ
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The
average total cost curve, labeled ATC -
Deadweight loss , completely shaded
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What must have been true for Joyce to continue operating during the month of February even though she earned negative economic profit?
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Assume that fixed costs for Joyce’s gas station decrease. Would Joyce’s profit-maximizing quantity increase, decrease, or stay the same in February? Explain.
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During the month of July, demand increases so that Joyce now earns a positive economic profit. However, she realizes her profits would have been higher if she had reduced the price of gasoline.
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At the quantity sold in July, was marginal revenue greater than, equal to, or less than marginal cost?
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Would the price decrease cause quantity demanded to increase, decrease, or stay the same?
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Would the price decrease cause the total revenue to increase, decrease, or stay the same? Explain.
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