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)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter14: Indirect Price Discrimination

Section: Chapter Questions

Problem 14.2IP

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