A local hardware store is trying to decide whether to stay open. They have found that their industry is extremely competitive and profits have shrunk considerably. Knowing that you have taken an economics course the owners have asked for your opinion. Draw a completely labeled graph to help you explain the shut down decision. Assume that the store is losing money; however, explain why they may want to stay open for a little while longer. (NOTE: Your answer should be a written explanation of your graph.)

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 persistently losing money. 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:

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

Will this stop his losses? Why or why not?