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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Larry, Curly, and Moe run the only saloon in town. Larry wants to sell as many drinks as possible without losing money. Curly wants the saloon to bring in as much revenue as possible. Moe wants to make the largest possible profits. Using a single diagram of the saloon’s demand curve and its cost curves, show the price and quantity combinations favored by each of the three partners. Explain. (Hint: Only one of these partners will want to set marginal revenue equal to marginal cost)

To determine
The diagrammatic representation of demand and cost curves.

Explanation

Figure 1 illustrates the profit maximization point.

Figure 1 depicts the demand curves and cost curves of the saloon which shows the price and quantity combinations favored by each of the three partners. The horizontal axis represents the quantity and the vertical axis represents the price and the costs. Since Larry wants to sell as many drinks as possible without losing money, he would set quantity where price equals average total cost...

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