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 $0.80 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.2.001.90Monopoly Outcome1.60Demand1.401.20--1.00MC = ATC0.900.600.400.20MR1530 45607590105120135150QUANTITY (Thousands of cans of beer)PRICE (Dollars per can) When they act as a profit-maximizing cartel, each company will producecans and charge $per can. Given thisinformation, each firm earns a daily profit of $, so the daily total industry profit in the beer market is $Oligopolists 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.Mays's deviation from the collusive agreement causes the price of a can of beer toto $|per can. Mays's profit is now$while McCovey's profit is now $Therefore, you can conclude that total industry profitwhenMays increases its output beyond the collusive quantity.

A cartel is a formal organization of producers of a commodity with a purpose of increasing profits…

Vhen they act as a profit-maximizing cartel, each company will produce nformation, each firm earns a daily profit of $ |cans and charge $ ], so the daily total industry profit in the beer market is S per can. Given this Dligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the wo companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. low, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the ollusive agreement. lays's deviation from the collusive agreement causes the price of a can of beer to while McCovey's profit is now $ to $ Therefore, you can conclude that total industry profit |per can. Mays's profit is now 24 when lays increases its output beyond the collusive quantity.

Vhen they act as a profit-maximizing cartel, each company will produce nformation, each firm earns a daily profit of $ |cans and charge $ ], so the daily total industry profit in the beer market is S per can. Given this Dligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the wo companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. low, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the ollusive agreement. lays's deviation from the collusive agreement causes the price of a can of beer to while McCovey's profit is now $ to $ Therefore, you can conclude that total industry profit |per can. Mays's profit is now 24 when lays increases its output beyond the collusive quantity.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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