Answered: BYOB is a monopolist in beer production…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 (MCMC), marginal revenue (MRMR), average total cost (ATCATC), and demand (D�) for beer in this market.

On the following graph, place the black point (plus symbol) 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. 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 Felix 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 Felix is correct. (Hint: If BYOB is suffering a loss, enter a negative value for profit.)

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

Given the earlier information, Felix 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 (MCMC) and average total cost (ATCATC) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATCATC curve and moving the MCMC curve.

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.
On the following graph, place the black point (plus symbol) 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. If BYOB is suffering a loss, use the purple rectangle (diamond
symbols) to shade in the area representing its loss.
4.00
PRICE AND COST PER UNIT (Dollars per can)
2.50
ATC
2.00
X
1.50
1.00
MC
MR
0.5
1.0
1.5
2.0
2.5
3.0 3.5
QUANTITY OF OUTPUT (Thousands of cans of beer)
3.50
3.00
0.50
0
D
4.0
Monopoly Outcome
Profit
Loss
Suppose that BYOB charges $2.50 per can. Your friend Felix 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 Felix is correct. (Hint: If BYOB is suffering a loss, enter a negative value for profit.)
Total Cost
Profit
Quantity Demanded Total Revenue
(Cans)
(Dollars)
(Dollars)
(Dollars)
Price
(Dollars per can)
2.50
3.00
Given the earlier information, Felix
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.
On the following graph, place the black point (plus symbol) 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. If BYOB is suffering a loss, use the purple rectangle (diamond
symbols) to shade in the area representing the loss.
PRICE AND COST PER UNIT (Dollars per unit)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
0
correct in his assertion that BYOB should charge $3.00 per can.
MO
MR
ATC
3.0 3.5
0.5 1.0 1.5 2.0 2.5
QUANTITY OF OUTPUT (Thousands of cans of beer)
D
4.0
Monopoly Outcome
Profit
Loss

Expert Solution

Step 1

As per economics, a cost curve is a graph of the costs of production as a function of the aggregate quantity produced. In a free market economy, productively efficient business optimize their production process by minimizing costs consistent with every possible level of production, and the outcome is a cost curve.

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