Stargell and Schmidt are 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 Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dollars per can) 2.00 1.80 1.60 Demand 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0 0 MR 80 160 240 320 400 480 560 640 MC = ATC 720 800 Monopoly Outcome

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Homework (Ch 17)
2. Deviating from the collusive outcome
Stargell and Schmidt are 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 Stargell and Schmidt 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 Stargell and
Schmidt choose to work together.
PRICE (Dollars per can)
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0
0
Demand
80 160 240
320
MR
400
480
560
MC = ATC
640 720 800
Monopoly Outcome
?
Transcribed Image Text:Homework (Ch 17) 2. Deviating from the collusive outcome Stargell and Schmidt are 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 Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dollars per can) 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0 0 Demand 80 160 240 320 MR 400 480 560 MC = ATC 640 720 800 Monopoly Outcome ?
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