Questions: Homework (Ch 15) Suppose Fire Dragon charges 2.75 per bottle. Your classmate Taio says that because Fire Dragon 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 Taio is correct. Price (Dollars per bottle) Quantity Demanded (Cans) Total Revenue (Dollars) Total Cost (Dollars) Profit (Dollars) 2.75 1,500 4,125.00 - 3.00 1,000 3,000.00 - Given the earlier information, Taio is correct in his assertion that Fire Dragon should charge 3.00 per bottle. Suppose that a technological innovation decreases Fire Dragon's costs so that it now faces the marginal cost (MC) and average total cost (ATC) given on the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and moving the MC curve.

To determine whether Taio is correct in asserting that Fire Dragon should charge $3.00 per bottle instead of $2.75, we need to calculate the profit at each price point using the given data.

1. Calculate Profit at $2.75 per Bottle:

   • Quantity Demanded: 1,500 cans
   • Total Revenue (TR): $4,125.00
   • Total Cost (TC): Not provided, but we can calculate profit if we assume TC is the same for both price points or if we have additional information.

   Profit is calculated as: \[ \text{Profit} = \text{Total Revenue} - \text{Total Cost} \]

2. Calculate Profit at $3.00 per Bottle:

   • Quantity Demanded: 1,000 cans
   • Total Revenue (TR): $3,000.00
   • Total Cost (TC): Not provided, but similar assumptions apply as above.

   Profit is calculated as: \[ \text{Profit} = \text{Total Revenue} - \text{Total Cost} \]

Without the total cost information, we cannot definitively calculate the profit for each scenario. However, we can make some observations:

• At $2.75 per bottle, the total revenue is higher ($4,125.00) compared to $3.00 per bottle ($3,000.00).
• If the total cost remains constant or increases less than the decrease in revenue when the price is increased to $3.00, then the profit at $2.75 could be higher.

Taio is not necessarily correct in his assertion that Fire Dragon should charge $3.00 per bottle. Without knowing the total costs, we cannot conclude that the higher price will lead to higher profits. The decision should be based on the profit calculation, which requires both revenue and cost information.

If a technological innovation decreases costs, this could affect the optimal pricing strategy. Lower costs could make the $2.75 price point more profitable if the cost savings are significant enough to offset the lower revenue compared to the $3.00 price point.