Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. 3:00 ATC 2.50 X 2:00 1.50 MC 1.00 MR PRICE (Dollars per bottle) 4.00 8 0.50 05 1 QUANTIT 1.5 20 2 30 D 40 Monopoly Outcome Profit Loss
Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. 3:00 ATC 2.50 X 2:00 1.50 MC 1.00 MR PRICE (Dollars per bottle) 4.00 8 0.50 05 1 QUANTIT 1.5 20 2 30 D 40 Monopoly Outcome Profit Loss
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter11: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 13CQ
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Transcribed Image Text:Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able
price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal
revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington.
Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a
profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss,
use the purple rectangle (diamond symbols) to shade in the area representing its loss.
3.00
ATC
2.50
AX
2.00
1.50
MC
1.00
MR
PRICE (Dollars per bottle)
4.00
3.50
8
0.50
0
1.0 1.5 20 2.5 3.0 3.5
QUANTITY (Thousands of bottles of beer)
0.5
D
4.0
Monopoly Outcome
Profit
Loss
Transcribed Image Text:Suppose Lagatt Green charges $2.75 per bottle. Your study partner Jabrill says that because Lagatt Green is a monopoly with market power, it should
charge the higher price of $3.00 per bottle in order to increase its profit.
Complete the following table to determine whether Jabrill is correct.
Quantity Demanded
Total Revenue
(Dollars)
Price
(Dollars per bottle)
2.75
3.00
Given the earlier information, Jabrill, correct in his assertion that Lagatt Green should charge $3.00 per bottle.
Suppose that a technological innovation decreases Lagatt Green'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.
4.00
PRICE (Dolars per unt
Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is
making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering
a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss
X
ATC
1.00
MC
MH
1.5
2.0 2.5
3.0 3.5
QUANTITY (Thousands of bollea of bear)
(Cans)
3.50
3.00
Total Cost
(Dollars)
0.50
0
Profit
(Dollars)
+
Monopoly Quicom
Profil
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