A firm that sells coffee is a monopolist in a small market. The firm wants to start selling another good, in which it will be a monopolist as well. There are two options: sugar and tea. Both have the same marginal costs. Which of the two should the firm choose to sell along with coffee and why? Would your answer change if the choice was between sugar and shampoo? (Assume that sugar and shampoo have the same marginal cost as well).

A firm that sells coffee is a monopolist in a small market. The firm wants to start selling another good, in which it will be a monopolist as well. There are two options: sugar and tea. Both have the same marginal costs. Which of the two should the firm choose to sell along with coffee and why? Would your answer change if the choice was between sugar and shampoo? (Assume that sugar and shampoo have the same marginal cost as well).

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter28: Antitrust And Regulation

Section: Chapter Questions

Problem 8E

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Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost.
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