Problem 2 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 MC MR 0.5 1.0 1.5 2.0 2.5 Quantity (millions of bottles/year) Price (cents per bottle) 10

Problem 2 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 MC MR 0.5 1.0 1.5 2.0 2.5 Quantity (millions of bottles/year) Price (cents per bottle) 10

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Monopoly Market

When a company and its products dominate a sector or an industry, it is termed a monopoly. When a firm and its products control a market, then it is called a monopoly.

Question

Problem 2
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)

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