Merkel, Inc. has a monopoly in producing coconut oil. Draw a graph to show the profit maximization by Merkel, Inc. Label the profit maximizing quantity, QM. Show that Merkel, Inc. is earning negative economic profit [that is, economic loss]. Label the loss either by shading or by using the letters to define the area.Make sure all the curves, axes and lines are labeled appropriately.Suppose that the coconut oil is produced in a perfectly competitive market. Use the graph you drew for part a) to show the profit maximizing quantity [label it Qc] produced by the perfectly competitive industry.Compare the competitive price with the monopoly price. Does the competitive industry earn loss or the profit situation is different now? Explain.Use the profit situation [loss or economic profit as drawn] to explain the long run adjustment by the firms in perfect competition.

Question
Asked May 8, 2019
24 views
  • Merkel, Inc. has a monopoly in producing coconut oil.

 

  1. Draw a graph to show the profit maximization by Merkel, Inc. Label the profit maximizing quantity, QM. Show that Merkel, Inc. is earning negative economic profit [that is, economic loss]. Label the loss either by shading or by using the letters to define the area.

Make sure all the curves, axes and lines are labeled appropriately.

  1. Suppose that the coconut oil is produced in a perfectly competitive market. Use the graph you drew for part a) to show the profit maximizing quantity [label it Qc] produced by the perfectly competitive industry.
  2. Compare the competitive price with the monopoly price. Does the competitive industry earn loss or the profit situation is different now? Explain.
  3. Use the profit situation [loss or economic profit as drawn] to explain the long run adjustment by the firms in perfect competition.
check_circle

Expert Answer

Step 1

1.

Monopoly:

In a monopoly market, profit maximization will occur at where the marginal revenue and marginal cost intersect each other.

Monopoly firm earns the negative profit, if price is less than the average cost.

Step 2

Figure -1 shows the negati...

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: 14 If the price elasticity of demand of for gasoline is 1.8, then a 15% decrease in quantity demande...

A: Price elasticity of demand (PED or Ed) shows the responsiveness or elasticity about the quantity dem...

question_answer

Q: Let’s say that Marianne is a politician who promises cheaper gasoline for everyone in the country if...

A: From the aforementioned question, it can be stated that Marianne is one of the politicians who are c...

question_answer

Q: An increase in the aggregate price level:     A) increases the demand for money.   B...

A: Changes in the price levelIn an economy, if the aggregate price of goods increases by 5%, then need ...

question_answer

Q: A firm sells its product in two different markets. The inverse demand in market A is PA = 72 - 5QA a...

A: We are given,the inverse demand curves for two markets A & B (for the same product),PA = 72 - 5Q...

question_answer

Q: I need help with principles of microeconomics chapter 10 problem 6 please help

A: We have been given the price and quantity schedule as follows:

question_answer

Q: If it looks like a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will ...

A: Federal fund rate is the interest rate at which the depository institutions lend reserve balances to...

question_answer

Q: please help

A: Profit maximization requires price of inputs to be equal to value of Marginal product of inputsP * M...

question_answer

Q: Student pricing at the movie theater is a common example of third degree price discrimination. What ...

A: Third-degree price discrimination is one of the forms of price discrimination that a firm or an indu...

question_answer

Q: Solow Growth Model    Why are these the right answers? See image.

A: From the questions, part a, this working is a short term phenomena and the increase in K will push t...