Question

4. Profit maximisation and loss minimisation BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Imagine 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. Complete the following table to determine whether Van is correct. Price (Dollars per can) 2.50 3.00 Quantity Demanded (Cans) Total Revenue (Dollars) Total Cost Profit (Dollars)( (Dollars) Place the black point (plus symbol) on the graph to indicate the profit maximising price ard quarntity 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. Given the earlier information, Van correct in his assertion that BYOB should charge $3.00er can 3.50 Monopoly Outcome 3.00 Pront TC L0 9 MR 0 0 10 1.0 20 20 30 4.0 QUANTITY (Thousards of cans of beer) Irmagine that BYOB charges $2.50 per can. Your friend Van 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.

Answer 1

Price	Quantity demanded	TR = PQ	TC	Profit = TR - TC
2.50	1500	3750	1500 x 2.75 = 4125	- 375
3	1000	3000	1000 x 3.75 = 3750	- 750

Van is incorrect because loss increases due to increase in price.