1 EconomicsMays 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.PRICE (Dollars per can)1.000.900.800.70 +0.600.500.400.300.200.100+0Demand80160MC-ATCMR240 320 400 480 560 640 720 800QUANTITY (Cans of beer)When they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of S+Monopoly Outcomecans and charge S, so the daily total industry profit in the beer market is S(?Mays's deviation from the collusive agreement causes the price of a can of beer to, while McCovey's profit is now $SMays 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.to STherefore, you can conclude that total industry profitper can. Mays's profit is nowwhen

Given Information and graph: MC = $ 0.40 per can

Economics 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

Economics 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

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Economics
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
80
160
MC-ATC
MR
240 320 400 480 560 640 720 800
QUANTITY (Cans of beer)
When they act as a profit-maximizing cartel, each company will produce
information, each firm earns a daily profit of S
+
Monopoly Outcome
cans and charge S
, so the daily total industry profit in the beer market is S
(?
Mays's deviation from the collusive agreement causes the price of a can of beer to
, while McCovey's profit is now $
S
Mays increases its output beyond the collusive quantity.
per can. Given this
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 Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the
collusive agreement.
to S
Therefore, you can conclude that total industry profit
per can. Mays's profit is now
when

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