2. Deviating from the collusive outcomeMays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can ofbeer is constant and equals $0.40 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for eachfirm.Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this modelrequires that the two companies must equally share the output.)Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays andMcCovey choose to work together.1.000.900.80DemandMonopoly Outcome0.700.600.50MC = ATC0.400.300.200.10MR80160240320400480560640720800QUANTITY (Cans of beer)4.When they act as a profit-maximizing cartel, each company will producecans and charge $per can. Given thisinformation, each firm earns a daily profit of $so the daily total industry profit in the beer market isOligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume thetwo companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit.Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under thecollusive agreement.Mays's deviation from the collusive agreement causes the price of a can of beer toto $per can. Mays's profit is now%24while McCovey's profit is now $Therefore, you can conclude that total industry profitwhenMays increases its output beyond the collusive quantity.PRICE (Dollars per can)

Oligopolies frequently battle for market share by stealing it from one another. As a result, rather…

Answered: 2. Deviating from the collusive outcome…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. a. If the firms stick to their agreement (cooperate), how much per-period profit do they each make? b. If they are not able to maintain their agreement (compete), what is their per-period profit? c. If one firm cheats on their agreement (deviate), how much does each firm make? Be sure to specify both the profit for the cheater and the firm cheated-on. d. Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel…
3. Breakdown of a cartel agreement Consider a town in which only two residents, Gregor and Haidy, own wells that produce water safe for drinking. Gregor and Haidy can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) 4.80 4.40 4.00 3.60 3.20 2.80 2.40 2.00 1.60 1.20 0.80 0.40 0 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 385 420 Total Revenue (Dollars) 0 $154.00 $280.00 $378.00 $448.00 $490.00 $504.00 $490.00 $448.00 $378.00 $280.00 $154.00 0 Suppose Gregor and Haidy form a cartel and behave as a monopolist. The profit-maximizing price is $ output is S per gallon, and the total gallons. As part of their cartel agreement, Gregor and Haidy agree to split production equally. Therefore, Gregor's profit is , and Haidy's profit is $ Suppose that Gregor and Haidy have been successfully operating as a cartel. They each charge the…
Please no written by hand solution Suppose two firms compete in quantities (Cournot). Market demand is given by P = 260 − 2Q, where Q = q1 + q2. Both firms have constant MC = AT C = 20.a. Solve for the Cournot equilibrium and find the Cournot equilibrium profits for each firm.b. Now suppose the two firms formed a cartel. What would be the profits for each firm then?c. If firm 2 sticks to the cartel agreement (quantity), then what is the best response for firm 1 (if firm 1 were to deviate)? Find the profits for firm 1 from deviating.d. How large must the probability-adjusted discount factor be in order for the cartel to be stable?e. How would the answer to part d. change if the two firms were competing in prices (Bertrand)?Please answer all steps, because no too much detailed answers required.
1. Perloff Chapter 14, Exercise 3.13 3.13 A duopoly faces an inverse market demand function of p = 120 - Q. Firm 1 has a constant marginal cost of 20. Firm 2's constant marginal cost is 40. Calculate the output of each firm, market output, and price in (a) a collusive equilibrium or (b) a Nash-Cournot equilibrium. (Hint: See Solved Problem 14.10.) M
1. which compete in quantities (Cournot -Nash equilibrium = C) 2. which compete in quantities with the first firm (the Leader) choosing the output first (Stackelberg competition = S). 3. which collude and choose quantities in order to maximize the joint profits (behave like two plants of a multiplant monopoly = M).
Deviating from the collusive outcome Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MCMC) of producing a can of beer is constant and equals $0.60 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATCATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together. table 1 When they act as a profit-maximizing cartel, each company will produce $____ cans and charge $______per can. Given this information, each firm earns a daily profit of $______, so the daily total industry profit in the beer market is $_______.…
8. Two firms, the only firms in the market, sell the same product and have the same marginal cost. They realise they would be better off if they didn't compete with each other. They enter an alternating offers bargaining game to decide how they will divide the monopoly profit, n. They have three periods to come to an agreement. If no agreement is reached after three periods, the firms will compete simultaneously in prices. The firms toss a coin to decide who makes the first offer in the bargaining game. Firm 1 wins and decides to go first. Each firm has a discount factor o. a) Draw the game tree. b) What is the subgame perfect equilibrium when o = 0.5? c) What is the equilibrium payoff for each firm? d) Was Firm 1 wise to opt to make the first offer? Explain your answer.
Deviating from the collusive outcome Please check the image there is a graph Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.60 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together. When they act as a profit-maximizing cartel, each company will produce cans $ and charge $ per can. Given this information, each firm earns a daily profit of $ , so the daily total industry…
11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB respectively. a. Find the Cournot-Nash equilibrium and profit for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple single pricing to perfect price discrimination? d. Graph and label equilibria on the inverse demand.
5. Two duopolistic oil producers are faced with the total demand function of P = 180– Q and the following cost functions: MC1 = 30 + Q1 MC2 = 20 + 2Q2 a. Determine the optimal levels of output, using the Cournot solution. b. What are the optimal outputs, if the two firms form a cartel
The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. Let's assume that the Canadian halibut processing industry there are only two firms(duopoly). Under such a market structure, if one of the halibut processing firm increases its price, then the other firm in the halibut processing industry can: keep the price of its processed halibut constant and thus increase its market share. keep its price of its processed halibut constant and thus decrease its market share. decrease its price of its processed halibut and thus decrease its market share. try to achieve economies of scale. increase its price of its processed halibut and thus increase its market share.

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