Mays 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 $1.20 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)2.001.801.601.201.000.800.600.40 +0.20 +0Demand0 4080MRMC ATC160 200 240 250 320 360 400QUANTITY (Cans of beer)Monopoly Outcome cans and charge Sso the daily total industry profit in the beer market is SWhen they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of 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 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).Mays's deviation from the collusive agreement causes the price of a can of beer toS], while McCovey's profit is now SMays increases its output beyond the collusive quantity.to S. Therefore, you can conclude that total industry profitper can. Mays's profit is nowwhen

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 $1.20 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 (Dollar per can) 2.00 Demand 1.00 1.00 0.80 0.60 0.40 0.20 0 0 40 80 MC ATC MR 120 160 200 240 260 320 360 400 QUANTITY (Cans of beer) Monopoly 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 $1.20 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 (Dollar per can) 2.00 Demand 1.00 1.00 0.80 0.60 0.40 0.20 0 0 40 80 MC ATC MR 120 160 200 240 260 320 360 400 QUANTITY (Cans of beer) 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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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. Mays's deviation from the collusive agreement causes the price of a can of beer to to $ per can. Mays's profit is now while McCovey's profit is now $ Therefore, you can conclude that total industry profit when Mays increases its output beyond the collusive quantity.
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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 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Cans of beer) PRICE (Dollars per can)
Economics
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