Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the two 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 Stargell decides to break the collusion and increase its output by 5 decrease Schmidt continues to produce the amount set under the collusive agreement. Stargell's deviation from the collusive agreement causes the price of a can of beer to now $ , while Schmidt's profit is now $ increase to $ per can. Stargell's profit is Therefore, you can conclude that total industry profit decreases when Stargell increases its output beyond the collusive quantity. 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 $1.20 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) 2.00 Demand 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 MR MC-ATC D 0 40 80 120 160 200 240 280 320 QUANTITY (Cans of beer) 360 400 Monopoly Outcome ?
Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the two 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 Stargell decides to break the collusion and increase its output by 5 decrease Schmidt continues to produce the amount set under the collusive agreement. Stargell's deviation from the collusive agreement causes the price of a can of beer to now $ , while Schmidt's profit is now $ increase to $ per can. Stargell's profit is Therefore, you can conclude that total industry profit decreases when Stargell increases its output beyond the collusive quantity. 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 $1.20 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) 2.00 Demand 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 MR MC-ATC D 0 40 80 120 160 200 240 280 320 QUANTITY (Cans of beer) 360 400 Monopoly Outcome ?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
Problem 3E
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Please help me, I'm not sure if my answers are correct.
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Transcribed Image Text:Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the
two 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 Stargell decides to break the collusion and increase its output by 5 decrease Schmidt continues to produce the amount set under
the collusive agreement.
Stargell's deviation from the collusive agreement causes the price of a can of beer to
now $
, while Schmidt's profit is now $
increase
to $
per can. Stargell's profit is
Therefore, you can conclude that total industry profit
decreases
when Stargell increases its output beyond the collusive quantity.
Transcribed Image Text: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 $1.20 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)
2.00
Demand
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
MR
MC-ATC
D
0
40
80
120 160 200 240 280 320
QUANTITY (Cans of beer)
360
400
Monopoly Outcome
?
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