Monopolies can sometimes find themselves in difficult financial situations

1. Monopolies can sometimes find themselves in difficult financial situations that lead to losses. Suppose Mr. Burns’ power company has a monopoly for providing electricity in Springfield. His costs of upkeep are so high that he is consistently losing money.

a.) Show this outcome in a completely labeled graph. Clearly identify all parts of your graph, including the best price and output for the firm as well as the losses.

Now, answer the following:

b.) What happens to the market output when Mr. Burns raises the price he charges?

c.) Will this stop his losses? Why or why not?