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 $ 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.
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 $ 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.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter10: Monopolistic Competition And Oligoply
Section: Chapter Questions
Problem 16SQ
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