6. 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. 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.and g1.000900.700.500.400.300.200.100Derrand40MC-AICMH00 100 120 140 100 100 200QUANTITY (Cao)+When they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of 5Monopoly Outcomcans and chargeso the daily total industry profit in the bear market is 5(?)Mays's deviation from the collusive agreement causes the price of a can of beer towhile McCovey's profit is nowMays increases its output beyond the collusive quantity.per 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 Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under thecollusive agreement. Using the demand curve shown in the previous graph, find the price associated with this new total level of combined output (theprice at which this new level of output would be purchased by consumers).per can. Mays's profit is nowwhenTherefore, you can conclude that total industry profit

Collusion in oligopoly refers to an agreement or understanding between firms in an oligopolistic…

6. 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.

6. 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 $…
14. Aside from advertising, how can monopolisticallycompetitive firms increase demand for their products? 17. Would you expect the kinked demand curve to bemore extreme (like a right angle) or less extreme (like anormal demand curve) if each firm in the cartel producesa near-identical product like OPEC and petroleum?What if each firm produces a somewhat differentproduct? Explain your reasoning.
2. Walmart (firm 1) and Amazon (firm 2) are a duopoly in the grocery market. They are faced with an inverse demand of P(Q1, Q2) = 4 – 2(Q1+ Q2) and total costs of TC(Q;) = 2Q?, i = 1, 2. Note that the marginal cost is not constant! 1. Obtain the Cournot equilibrium quantities and profits. 2. Obtain the Stackelberg equilibrium in which Walmart moves first. Compare with the Cournot equilibrium. 3. Obtain the cartel outcome (= shared monopoly). Compare with Stackelberg and Cournot.
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…
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.…
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 $_______.…
When comparing two firms operating as a cartel/colluding and two firms competing in Cournot competition, given the firms face the same inverse market demand and marginal cost is the same for both firms in either situation, which of the following is true? а. The total profit is the same in Cournot competition and collusion. O b. Total output is higher in collusion than in Cournot competition and the price is lower in collusion than in Cournot Competition. Ос. The total profit is lower in Cournot competition than in collusion. O d. Total output is lower in collusion than in Cournot competition and the price is higher in collusion than in Cournot Competition.
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.