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 $0.80 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. **Graph Explanation:**The graph illustrates a cost and revenue structure in a beer market with the following components:1. **Axes:** - The x-axis represents the quantity of beer produced, measured in cans. - The y-axis represents the price per can, in dollars.2. **Demand Curve:** - The blue line labeled "Demand" slopes downward from left to right. It starts at $1.60 when quantity is 0 and intersects the x-axis around 640 cans. This line shows that as the price decreases, the quantity demanded increases.3. **Marginal Revenue (MR) Curve:** - The black line labeled "MR" also slopes downward, below the demand curve, reflecting diminishing additional revenue from selling an additional unit.4. **Marginal Cost (MC) and Average Total Cost (ATC) Curve:** - The orange horizontal line labeled "MC = ATC" is set at $0.80. This line indicates that both the marginal cost and average total cost per can are constant at this price.5. **Monopoly Outcome:** - The graph marks a point labeled "Monopoly Outcome," indicating the quantity and price where profit is maximized for a monopolistic market structure.**Text for Educational Website:**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 $[____]. ### Understanding Oligopolistic Behavior**Oligopolists and Noncooperative Behavior:**Oligopolists often behave noncooperatively, acting in their own self-interest. This behavior can decrease total profit in the market. Consider a scenario in which two companies form a cartel to work together. Both initially agree to produce half the quantity that maximizes total industry profit.**Breaking the Collusion:**Suppose Mays decides to break the collusion and increase its output by a small amount, while McCovey continues with the collusive agreement.**Impact on Prices and Profits:**- Mays's deviation from the collusive agreement causes the price of a can of beer to change from \$ (initial price) to \$ (new price) per can. - Mays’s profit after deviation is \$ (Mays's new profit).- McCovey's profit becomes \$ (McCovey's new profit).**Conclusion on Industry Profit:**From this scenario, we can conclude that total industry profit (increases/decreases) when Mays increases its output beyond the collusive quantity.(Note: The dropdown options "decrease/increase" are critical for understanding how these changes impact total industry profit.)

Duopoly refers to a market scenario in which only two firms are available to fulfill the production needs of the market . These two firms can either compete each other in quantity and prices , or they can a form a cartel and jointly maximize the profit .Black thin line is a price and output combination under the cartel/Monopoly. 1) Since Cartel will behave like Monopoly and Monopoly profits is maximized is at intersection of MR and MC curves, with quantity 160, price $1.20 and ATC $0.8. Each firm will produce 80 cans (= 160/2) and charge $1.20. Each firm earns profit of = Firm output x (Price - ATC) = 80 x $(1.20 - 0.8) = 80 x $0.4 =$32 and industry profit is = $32 x 2 = $64 2 .) Now the two firms decide not to cooperate and compete each other by deviating from the decided production levels . Firms decide to increase their production so as to provide more goods at cheaper prices so that they can capture major market share . And following tit for tat strategy both keep on going increasing their production and undercutting prices . This process continues till the point the price level becomes equal to the marginal costs . Beyond which no firm can undercut prices as they will start to make losses . decreases 0.80 0 (P = MC , 0 profits ) 0 Declines