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In: Economics

Your boss has a patent on Coyote Custom Churn, a remarkable new machine which allows customers...

Your boss has a patent on Coyote Custom Churn, a remarkable new machine which allows customers at restaurants to create custom sodas using all Coyote Cola flavors and works equally well in high school and college chemistry labs to perform experiments and create solutions safely. As you can imagine, demand for Coyote Custom Churn is quite impressive: QD = 750 – .05 P. The technology for producing Coyote Custom Churn results in a total cost function of TC = 7,000 Q.

What quantity of output should we choose to produce, what price will we charge, and how much profit can we earn, as a profit maximizing monopolist?

How much consumer surplus, producer surplus, and deadweight loss results from the monopolization of this market (we will practice this in office hours if you have forgotten since ECON 201)? (Hint: A graph may be helpful here.)

If the patent expired and no barriers to entry remained, with all entrants using the same technology, what would a perfectly competitive market do in this market, in terms of price and quantity produced?

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Expert Solution

Rahul Sunny answered 2 years ago
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