Elixir Springs is a natural monopoly that bottles Elixir, a unique health product with no substitutes. The total fixed cost incurred by Elixir Springs is $150,000, and its marginal cost is 10 cents a bottle. The figure illustrates the demand for Elixir. a) What is the price of a bottle of Elixir and how many bottles does Elixir Springs sell? b) Does Elixir Springs maximize total surplus or producer surplus? Figure 1 Elixir Springs 50 40 30 20 ATC 10 MC MR 0.5 1.0 1.5 2.0 2.5 Quantity (millions of bottles/year) Price (cents per bottle)
Elixir Springs is a natural monopoly that bottles Elixir, a unique health product with no substitutes. The total fixed cost incurred by Elixir Springs is $150,000, and its marginal cost is 10 cents a bottle. The figure illustrates the demand for Elixir. a) What is the price of a bottle of Elixir and how many bottles does Elixir Springs sell? b) Does Elixir Springs maximize total surplus or producer surplus? Figure 1 Elixir Springs 50 40 30 20 ATC 10 MC MR 0.5 1.0 1.5 2.0 2.5 Quantity (millions of bottles/year) Price (cents per bottle)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Elixir Springs, Inc., is an unregulated European natural monopoly that bottles Elixir, a unique health product with no substitutes. The total fixed cost incurred by Elixir Springs is €150,000,€150,000, and its marginal cost is 10 cents a bottle. The figure illustrates the
a What is the price of a bottle of Elixir?
b How many bottles does Elixir Springs sell?
c Does Elixir Springs maximize total surplus or
Transcribed Image Text:Elixir Springs is a natural monopoly that bottles Elixir, a unique health product with no substitutes.
The total fixed cost incurred by Elixir Springs is $150,000, and its marginal cost is 10 cents a
bottle. The figure illustrates the demand for Elixir.
a) What is the price of a bottle of Elixir and how many bottles does Elixir Springs sell?
b) Does Elixir Springs maximize total surplus or producer surplus?
Figure 1 Elixir Springs
50
40
30
20
ATC
10
MC
MR
D
0.5
1.0
1.5
2.0
2.5
Quantity (millions of bottles/lyear)
Price (cents per bottle)
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