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 100 200 MR MC = ATC 300 400 500 600 700 800 900 1000 QUANTITY (Cans of beer) When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of $ Monopoly Outcome cans and charge $ so the daily total industry profit in the beer market is $ ? Mays's deviation from the collusive agreement causes the price of a can of beer to now $ , while McCovey's profit is now $ 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. per can. Mays's profit is to $ . Therefore, you can conclude that total industry profit when

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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.

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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
100 200
MC = ATC
MR
300 400 500 600 700 800 900 1000
QUANTITY (Cans of beer)
When they act as a profit-maximizing cartel, each company will produce
information, each firm earns a daily profit of $
++
Monopoly Outcome
?
cans and charge $
, so the daily total industry profit in the beer market is $
Mays's deviation from the collusive agreement causes the price of a can of beer to
now $
, while McCovey's profit is now $
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.
per can. Mays's profit is
to $
. Therefore, you can conclude that total industry profit
when

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