Question

Made the right way with fresh ingredients, boeuf bourguignon (look it up!) is the best thing ever. Your friend Ella Marija Lani Yelich-O'Connor has abandoned her music career to open a bistro, which specializes in boeuf bourguignon and other French food, including crème brulee. She has done some market research and finds that your neighbors value boeuf bourguignon dinners according to the following schedule:

Servings	MU boeuf bourguignon
1	$60.00
2	$58.00
3	$56.00
4	$54.00
5	$52.00
6	$50.00
7	$48.00
8	$46.00
9	$44.00
10	$42.00
11	$40.00
12	$38.00
13	$36.00
14	$34.00

Ella makes boeuf bourguignon using equipment that she rents for $75 and beef, potatoes, wine and other ingredients that cost $12.50 a serving. (Note that she signed a lease and pays the rent regardless of how many dinners she serves.) She hires workers at $25 each and finds that they produce servings according to the following schedule:

Servings	Total Workers
1	0.30
2	1.00
3	1.90
4	3.00
5	4.30
6	5.80
7	7.50
8	9.40
9	11.50
10	13.80
11	16.30
12	19.00
13	21.90
14	25.00

.

Moving Equilibrium. Show the effect of each on the monopoly market equilibrium; you don’t need to have exact answers but explain the direction of change in the demand and/or marginal cost curves.

5a. Beef prices rise.

5b. There is good weather, and potatoes are in abundant supply.

5c. Taylor Swift opens a restaurant across the street.

5d. A local restaurant reviewer praises the quality of Ella’s boeuf bourguignon.

Answer 1

A monopoly equilibrium is obtained at intersection of MR and MC curves. In each graph, D0, MR0 & MC0 are initial demand, MR & MC curves. For simplicity, a linear MC curve is assumed. Initial equilibrium is at point A with price P0 and output Q0.

(5a) Higher beef price (an input) will increase marginal cost, shifting MC curve upward to MC1, intersecting MR0 at point B. Equilibrium price will rise to P1 and output will fall to Q1.

(5b) Abundant supply of potatoes (an input) will lower the cost of potato, decreasing input cost. This will shift MC curve downward to MC1, intersecting MR0 at point B. Equilibrium price will fall to P1 and output will rise to Q1.

(5c) Opening of another restaurant will increase competition, lowering demand. The demand curve (and MR) will shift leftward to D1 (and MR1). New equilibrium is at point B where MR1 intersects MC0 with lower price P1 and lower output Q1.

(5d) Positive review will increase demand. The demand curve (and MR) will shift rightward to D1 (and MR1). New equilibrium is at point B where MR1 intersects MC0 with higher price P1 and higher output Q1.