Suppose Lagatt Green charges $2.75 per bottle. Your study partner Jeremiah says that because Lagatt Green is a monopoly with market power, it should charge the higher price of $3.00 per bottle in order to increase its profit. Complete the following table to determine whether Jeremiah is correct. Price Quantity Demanded Total Revenue Total Cost Profit (Dollars per bottle) (Cans) (Dollars) (Dollars) (Dollars) 2.75 3.00 Given the earlier information, Jeremiah correct in his assertion that Lagatt Green should charge $3.00 per bottle.
To determine whether Jeremiah is correct, we need to calculate the total revenue, total cost, and profit at both prices of $2.75 and $3.00 per bottle.
At $2.75 per bottle:
Price: $2.75
Quantity Demanded: Let's assume that Lagatt Green sells 100 bottles at this price
Total Revenue: $2.75 * 100 = $275
Total Cost: Let's assume the total cost per bottle is $2.50. Total Cost = $2.50 * 100 = $250
Profit: Total Revenue - Total Cost = $275 - $250 = $25
At $3.00 per bottle:
Price: $3.00
Quantity Demanded: Let's assume that Lagatt Green sells 90 bottles at this price
Total Revenue: $3.00 * 90 = $270
Total Cost: Let's assume the total cost per bottle is $2.50. Total Cost = $2.50 * 90 = $225
Profit: Total Revenue - Total Cost = $270 - $225 = $45
Based on the calculations, charging $3.00 per bottle would indeed increase the profit for Lagatt Green. Jeremiah is correct in his assertion that Lagatt Green should charge the higher price of $3.00 per bottle in order to increase its profit.