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 $0.80 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) 1.20 1.00 0.80 0.60 0.40 0.20 ༞ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ Demand MR MC = ATC 0 0 90 180 270 360 450 540 630 720 810 900 QUANTITY (Cans of beer) + Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce charge $ per can. Given this information, each firm earns a daily profit of $ , so the daily total industry profit in the beer market is $ cans and 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 50%, while Schmidt continues to produce the amount set under the collusive agreement. to Stargell's deviation from the collusive agreement causes the price of a can of beer to $ per can. Stargell's profit is now $ Schmidt's profit is now profit while . Therefore, you can conclude that total industry 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 $0.80 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) 1.20 1.00 0.80 0.60 0.40 0.20 ༞ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ Demand MR MC = ATC 0 0 90 180 270 360 450 540 630 720 810 900 QUANTITY (Cans of beer) + Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce charge $ per can. Given this information, each firm earns a daily profit of $ , so the daily total industry profit in the beer market is $ cans and 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 50%, while Schmidt continues to produce the amount set under the collusive agreement. to Stargell's deviation from the collusive agreement causes the price of a can of beer to $ per can. Stargell's profit is now $ Schmidt's profit is now profit while . Therefore, you can conclude that total industry when Stargell increases its output beyond the collusive quantity.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 $0.80 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)
1.20
1.00
0.80
0.60
0.40
0.20
༞ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔
Demand
MR
MC = ATC
0
0
90
180 270 360 450 540 630
720 810 900
QUANTITY (Cans of beer)
+
Monopoly Outcome
When they act as a profit-maximizing cartel, each company will produce
charge $
per can. Given this information, each firm earns a daily profit
of $
, so the daily total industry profit in the beer market is $
cans and
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 50%,
while Schmidt continues to produce the amount set under the collusive agreement.
to
Stargell's deviation from the collusive agreement causes the price of a can of beer
to $
per can. Stargell's profit is now $
Schmidt's profit is now
profit
while
. Therefore, you can conclude that total industry
when Stargell increases its output beyond the collusive quantity.
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