4 Profit maximlzation and loss minimization BY08 Is a monopo

4. Profit maximlzation and loss minimization BY08 Is a monopolist in teer production and distrt ution insma country. Suppose that BYOB carnot price disariminate. It sells ts beer at the same price per can to al customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) in the market for beer. Place the grey point (star symbol) on the graph to indicabe the profit-maximizing price and quantity for BYOB. Drop lines will extend to both axes yBYOB is making prom, use the purple rectangie (dian ond symbols) to shade inthe area representing its profit. Onthe other hand, irno8 suffering an economic loss, use the red rectangle (cross symbols) to shade in the area representing its economic loss Suppose that BYOB chrges $2.75 per can Your triend Eric says that since BYob is a monopoly with market power, r shouls charge a hgher ri of $3.00 per can. Eric claims that tros would break even ts. Fa ie the folowing table to setemine whether tric is comect Quentity Demanded Total Revenue Given the earlier informaion, Eric

Solution

1) The equilibrium will be at quantity where MC curve intersects MR curve.

The equilibrium Q = 25

2)At price=$3.00

the quantity demanded will be the value of demand(D) line at $3.0 price = 20

Total Revenue = Price*Quantity demanded = 3*20 = $60

Total Cost = ATC*Q = 3.5*20 = $70

Profit = Total Revenue - Total Cost = 60-70 = -$10

3)Given the earlier information, Eric is not correct ...