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 $0.20 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.(Dollars per can)PRICE1.000.900.800.700.600.500.400.300.200.1000DemandMC = ATCMR90 180 270 360 450 540 630 720 810 900QUANTITY (Cans of beer)Monopoly Outcome(2) When they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of $cans and charge $, so the daily total industry profit in the beer market is $Oligopolists 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 decrease McCovey continues to produce the amount set under thecollusive agreement.increaseper can. Given thisMays's deviation from the collusive agreement causes the price of a can of beer to decrease to $$while McCovey's profit is now $Mays increases its output beyond the collusive quantity.per can. Mays's profit is nowwhenTherefore, you can conclude that total industry profit decreases

Cartels are formed with the aim of maximizing profits by reducing competition between members and…

2. Deviating from the collusive outcome 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 $0.20 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.

2. Deviating from the collusive outcome 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 $0.20 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.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 3SCQ: Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal...

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Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.
2. Deviating from the collusive outcome Stargell and Schmidt are 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 $0.20 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dolars per can) 1.00 090 080 0.70 080 0.50 6.40 0.30 0:30 6.10 0 Demand D 20 40 MR 60 00 100 120 140 QUANTITY (Cans of beer) MC ATC 140 160 200 Monopoly Outcome
2. Deviating from the collusive outcome Stargell and Schmidt are 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 $0.20 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dollars per can) 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 0 Demand + 20 40 MR 60 80 100 120 140 160 QUANTITY (Cans of beer) MC = ATC 180 200 Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce information, each firm…
2. Deviating from the collusive outcome 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 $0.40 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. PRICE (Dollars per can) 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 + 0 Demand 20 40 MR MC = ATC 60 80 100 120 140 160 180 200 QUANTITY (Cans of beer) When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of $…
. Deviating from the collusive outcome 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.)
2. Ryan and Zheka produce the same homogeneous product and each has constant marginal costs of \$7. Market demand is linear, with vertical intercept 60 and horizontal intercept 30. Ryan and Zheka are Bertrand competitors, so pricing is important to them. What price will each charge in the unique Nash equilibrium of this Bertrand duopoly? a) Both charge a price of \$6. b) Both charge a price of \$7. c) Both charge a price of \$20. d) One charges \$7, the other stays out of the market.
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bok rint An oligopoly producing a homogeneous product is comprised of three firms that act like a cartel. Assume that these three firms have identical cost schedules. Assume also that if any one of these firms sets a price for the product, the other two firms charge the same price. As long as they all charge the same price they will share the market equally; and the quantity demanded of each will be the same. Below is the total-cost schedule of one of these firms and the demand schedule that confronts it when the other firms charge the same price as this firm. Complete the marginal-cost and marginal- revenue schedules facing the firm. erences Mc Graw Hill Output Total cost Marginal cost Price Quantity demanded Marginal revenue 0 1 23456 7 8 $0 180 300 480 720 1,020 1,380 1,800 2,280 Short Anewor LA JUL 26 $780 720 660 600 540 480 420 360 Toolbar navigation (a) What price would be charged, what output would be produced, and what profit would be made by this firm? (b) If the firms…
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.
3. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette 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) 4.20 3.85 3.50 3.15 2.80 2.45 2.10 1.75 1.40 1.05 0.70 0.35 0 Quantity Demanded (Gallons of water) 0 40 80 120 160 200 240 280 320 360 400 440 480 Suppose Sean and Yvette form a cartel and behave as a monopolist. The profit-maximizing price is $ is per gallon, and the total output gallons. As part of their cartel agreement, Sean and Yvette agree to split production equally. Therefore, Sean's profit is $ and Yvette's profit is $ Total Revenue Suppose that Sean and Yvette have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Sean says to…