Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.50 per can. Your friend Clancy says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the following table to determine whether Clancy is correct. Price Quantity Demanded Total Revenue Total Cost Profit (Dollars per can) (Cans) (Dollars) (Dollars) (Dollars) 2.50 3.00 Given the earlier information, Clancy (IS OR IS NOT) correct in his assertion that BYOB should charge $3.00 per can. Suppose that a technological innovation decreases BYOB’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. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. Monopoly OutcomeProfitLoss00.51.01.52.02.53.03.54.04.003.503.002.502.001.501.000.500PRICE (Dollars per unit)QUANTITY (Thousands of cans of beer)DMRMCATC

Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.50 per can. Your friend Clancy says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the following table to determine whether Clancy is correct. Price Quantity Demanded Total Revenue Total Cost Profit (Dollars per can) (Cans) (Dollars) (Dollars) (Dollars) 2.50 3.00 Given the earlier information, Clancy (IS OR IS NOT) correct in his assertion that BYOB should charge $3.00 per can. Suppose that a technological innovation decreases BYOB’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. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. Monopoly OutcomeProfitLoss00.51.01.52.02.53.03.54.04.003.503.002.502.001.501.000.500PRICE (Dollars per unit)QUANTITY (Thousands of cans of beer)DMRMCATC

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 3CQQ

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. Profit maximization and loss minimization

BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market.

Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss.

Suppose that BYOB charges $2.50 per can. Your friend Clancy says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit.

Complete the following table to determine whether Clancy is correct.

Price	Quantity Demanded	Total Revenue	Total Cost	Profit
(Dollars per can)	(Cans)	(Dollars)	(Dollars)	(Dollars)
2.50
3.00

Given the earlier information, Clancy (IS OR IS NOT) correct in his assertion that BYOB should charge $3.00 per can.

Suppose that a technological innovation decreases BYOB’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.

Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss.

Monopoly OutcomeProfitLoss00.51.01.52.02.53.03.54.04.003.503.002.502.001.501.000.500PRICE (Dollars per unit)QUANTITY (Thousands of cans of beer)DMRMCATC

Monopoly Outcome
100
Prott
ATC
200
150
Loss
100
MO
MR
QUANTITY (Thousands of cans of beer)
Suppose that BYO0 charges $2.50 per can. Your friend Clancy says that since BYOB is a monopoly with market power, it should charge a higher price
of $3.00 per can because this will increase BYOB's profit.
PRICE Dtars pr can)

(?
4.00
3.50
Monopoly Outcome
3.00
2.50
Profit
2.00
ATC
Loss
1.50
1.00
0.50
MC
MR
0.5
1.0
1.5
20
25
3.0
3.5 4.0
QUANTITY (Thousands of cans of beer)
PRICE (Dolars per unit)

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