4. Profit maximization and loss minimization
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.
Place the black point (plus symbol) on the graph 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. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss.

Question

07-07-2022
Business

Answered

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4. Profit maximization and loss minimization
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.
Place the black point (plus symbol) on the graph 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. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss.

Sagot :

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Tundexi Tundexi · Answer 1 · 2022-07-08T12:34:58-04:00

Jake is incorrect with his assertion that the BYOB should charge 2.25 per can.

What is Profit maximization and Loss minimization?

The process of Profit maximization ensures that favorable output and price are achieved to maximize its return while the process of Loss minimization ensures there is lower loss on return in the longer-run.

Price QD T*R(P*Q) Total cost(ATC*Q) Profit(TR-TC)

2 1000 2000 2750 -750

2.25 750 1687.5 2625 -937.5

Given that loss realized is lower in $2 per unit than $2.25 per unit, then, Jake is not correct with his assertion that the BYOB should charge 2.25 per can.

Note: The point has been placed on the graph to indicate the profit-maximizing price and quantity for BYOB.

Sagot :

What is Profit maximization and Loss minimization?

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