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 $0.60 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. 1.00 Demand 0.90 Monopoly Outcome 0.80 0.70 MC = ATC 0.60 0.50 0.40 0.30 0.20 0.10 MR + 30 60 120 150 180 210 240 270 300 06 QUANTITY (Thousands of cans of beer) cans and charge $ so the daily total industry profit in the beer market is $ When they act as a profit-maximizing cartel, each company will produce per can. Given this information, each firm earns a daily profit of $ PRICE (Dollars per can)

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 $0.60 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. 1.00 Demand 0.90 Monopoly Outcome 0.80 0.70 MC = ATC 0.60 0.50 0.40 0.30 0.20 0.10 MR + 30 60 120 150 180 210 240 270 300 06 QUANTITY (Thousands of cans of beer) cans and charge $ so the daily total industry profit in the beer market is $ When they act as a profit-maximizing cartel, each company will produce per can. Given this information, each firm earns a daily profit of $ PRICE (Dollars per can)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Cartel theory is usually understood as the doctrine of economic cartels. However, since the concept of 'cartel' does not have to be limited to the field of the economy, doctrines on non-economic cartels are conceivable in principle. Explain the cartel theory using an appropriate graph. Indicate the incentive for the oligopoly firms to form a cartel.
Faceblock, Gargle+, and SnapHat are rival firms in an oligopoly industry. If kinked-demand theory applies to these three firms, Faceblock’s demand curve will be: a. More elastic above the current price than below it. b. Less elastic above the current price than below it. c. Of equal elasticity both above and below the current price. d. None of the above
8. The table below shows the demand schedule for 350mL cans of cola which are manufactured by two different firms. Quantity Price $16 $14 $12 $10 1 2 3 $8 $6 4 $4 $2 $0 6 7 8 Suppose the two firms collude and form a cartel. What price will the cartel charge in this market if the marginal cost of production is $3/can? (They can only pick one of the options in the table.)
Isolated Island has two wind turbines producing electricity, one owned by Dick and the other owned by Harry. Quantity demanded (units per day) Price (dollars per unit) The marginal cost of producing electricity is $4 a unit. 12 11 1 The table gives the demand schedule for electricity in this area. 10 2 9 3 If Dick and Harry form a cartel and maximize their joint profit, what will be the price of electricity and the total quantity produced? 8 4 7 5 If Dick and Harry form a cartel and maximize their joint profit, the price of a unit of electricity is $ and the quantity produced is units a day. 6 7
6.
CS 25 Economics
4. Farmer Andy and Farmer Betty are the only two farmers that grow heirloom tomatoes for sale at the local farmer's market and compete as Cournot duopolists. The inverse demand curve for heirloom tomatoes at the market is P = 140 - 5Q where P is the %3D price per pound of tomatoes and Q is the number of pounds of tomatoes in hundreds per week; Q = qA + qB. Both Andy and Betty have a cost of growing tomatoes of w = 10, r = 20, and both have K = 1 in the short run. They both have a production function of q = L0.5KO.5. They will both earn profits of --.
1
Suppose that there are two firms producing a homogenous product and competing in Cournot fashion and let the market demand be given by Q = 360-- Assume for simplicity that each firm operates with zero total cost. Suppose that two firms collude. How much more profit each firm can obtain relative to Cournot competition? 8000 14400 7200 16000
Seagate and Western Digital (WD) run a cartel producing identical 1 TB hard drives. The demand for hard drives is Q = 17 – P. They both have MC = 2 and no fixed cost so ATC = 2. This is a lot like the Coke-Pepsi game in the duopoly quantity_game video. You can verify that together the firms maximize their (combined) profit by each making 3.75 hard drives. What profit does Seagate make with this cartel agreement? $
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.