Scenario: Tobac Co. is a monopolist in cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack and a fixed cost of $50 million.

-Refer to the scenario above.Tobac Co.is forced by the government to charge the fair-return price,the producer surplus would be ________.

Question

Scenario: Tobac Co. is a monopolist in cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack and a fixed cost of $50 million.
 
-Refer to the scenario above.Tobac Co.is forced by the government to charge the fair-return price,the producer surplus would be ________.

Quizplus · Accepted Answer

When Tobac Co. is forced to charge the fair-return price, it means they are allowed to cover their costs and earn a normal profit. This typically results in a producer surplus that is positive and potentially more than $50 million, depending on the cost structure and demand.