2. Deviating from the collusive outcomeStargell and Schmidt are brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer isconstant 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 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 Stargell andSchmidt choose to work together.PRICE (Dolars per can)1.000900800.700800.506.400.300:306.100DemandD2040MR6000100 120 140QUANTITY (Cans of beer)MC ATC140 160 200Monopoly Outcome When they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of scans and chargesso the daily total industry profit in the beer market is sper can. Given thisOligopolists 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 Stargell decides to break the collusion and increase its output by 50%, while Schmidt continues to produce the amount set underthe collusive agreement.Stargell's deviation from the collusive agreement causes the price of a can of beer to, while Schmidt's profit is now snow sStargell increases its output beyond the collusive quantity.per can. Stargell's profit iswhento s. Therefore, you can conclude that total industry profit

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 Demand 60+ 0.00 0.70 640 6.50 6.40 0.30 0309 6.10 0 • 20 40 MR 80 100 120 140 QUANTITY (Cans of beer) 60 140 MC ATC 180 200 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 (Dolars per can) 1.00 Demand 60+ 0.00 0.70 640 6.50 6.40 0.30 0309 6.10 0 • 20 40 MR 80 100 120 140 QUANTITY (Cans of beer) 60 140 MC ATC 180 200 Monopoly Outcome

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.
Assume that the market for oil is made up of two firms: Exxon Mobil and Chevron. Also assume that New England has dozens of breweries and each of these make beers with different tastes, colors, and aromas. Which of the following statements is true? The market structure for oil is an oligopoly, and the one for beer is monopolistic competition. The market structure for oil is monopolistic competition, and the one for beer is an oligopoly. The market structure for both oil and beer is an oligopoly. The market structure for both oil and beer is monopolistic competition.
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 $0.60 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. ? PRICE (Dollars per can) 1.00 Demand 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 MR MC = ATC 0 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Cans of beer) Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce charge cans and per can.…
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
2. Consider the following game: Soapy Inc. and Suddies Inc. are the only producers of soap powder. They collude and agree to share the market equally. If neither firm cheats on the agreement, each makes $1 million profit. If either firm cheats, the cheat makes a profit of $1.5 million, while the complier incurs a loss of $0.5 million. If both cheat, they break even. Neither firm can monitor the other's actions. a) Construct the payoff matrix. b) What is the dominant strategy? c) What is the nash equilibrium for this game?
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…
2. Two firms competing on output choice in an oligopolistic market face the following inverse market demand curve P = 100 – 1.5Q where Q = q1 + 92 Each firm faces a total cost function given as TC, = 6q1 TC, = 3q2 Assume the firms are Cournot competitors and determine the equilibrium quantity, price and profit for each firm.
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