### Monopolistic Behavior in a Duopoly Market: Case Study of Mays and McCovey Beer-Brewing Companies#### OverviewMays 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.#### ScenarioSuppose 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.)*#### TaskPlace 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.#### Graph ExplanationThe graph is a Price (Dollars per can) vs. Quantity (cans per day) chart representing the market situation for Mays and McCovey.1. **Axes:** - The vertical axis represents the price in dollars per can, ranging from $0.30 to $1.00. - The horizontal axis represents the quantity of cans per day ranging from 0 to 1400.2. **Curves:** - **Demand Curve (Blue Line):** This negatively sloped line shows the relationship between the price of the beer and the quantity demanded. - **Marginal Cost / Average Total Cost Line (Orange Line):** This horizontal line at $0.60 represents the constant marginal and average total cost of producing beer. 3. **Monopoly Outcome:** - The marked "Monopoly Outcome" area indicates the point where the cartel maximizes profit by coordinating to produce less output than a competitive market would, thereby raising prices.4. **Other Features:** - Dashed lines and grids are used to clearly show prices at specific quantities.#### ConclusionTo find the profit-maximizing price and combined quantity of output when Mays and McCovey operate as a cartel, position the black point (plus symbol) prominently on the graph at the intersection indicating the monopoly outcome. This point maximizes their combined profits under coordinated behavior in a duopoly market setting.#### Action RequiredEnsure you place the black point on the graph to visually ## Understanding Oligopoly Behavior and Profit Maximization### Graph DescriptionThe graph on the screen displays the relationship between the price and quantity of cans of beer. There are two curves:- **Demand Curve** (indicated in blue): It slopes downward from left to right, showing that as the quantity of cans increases, the price decreases.- **Marginal Revenue (MR) Curve** (indicated in black): This curve also slopes downward and lies below the demand curve, representing the additional revenue gained from selling one more unit.### Problem Description and AnalysisWhen the two companies act as a profit-maximizing cartel:- Each company will produce _____ cans.- Each company will charge $_____ per can.Given this information:- Each firm earns a daily profit of $_____.- Therefore, the daily total industry profit in the beer market is $_____.### Noncooperative Behavior in OligopoliesOligopolists often act on their own self-interest rather than cooperatively, which can decrease total market profit. Assume the two companies form a cartel and decide to cooperate. Each initially agrees to produce half the quantity that maximizes total industry profit.Now, suppose Company Mays decides to break the collusion agreement by increasing its output by 50%, while Company McCovey continues to produce the agreed-upon amount.### Analysis of Collusion DeviationMays's deviation results in:- The price of a can of beer changing to $_____.- Mays's profit changing to $_____.- McCovey's profit changing to $_____.Therefore, you can conclude that total industry profit _____ when Mays increases its output beyond the collusive quantity.### ConclusionThis exercise in oligopoly behavior illustrates the tension between cooperative and noncooperative strategies in industry markets. It shows how deviations from collusive agreements impact pricing, individual profits, and total market profits.

The structure of a market where there exist only a few sellers in the market who have interdependent…

When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of $ cans and charge $ , so the daily total industry profit in the beer market is $ per can. Given this

When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of $ cans and charge $ , so the daily total industry profit in the beer market is $ per can. Given this

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

3
Would it be answer 1? Imagine a duopoly in which two firms, A and B, produce the monopoly profit-maximizing output and equally share the economic profit. If firm A increases output, 1)both firms' profits increase. 2)firm A's profits increase and firm B's profits decrease. 3)firm B's profits increase and firm A's profits decrease. 4)both firms' profits decrease. 5)firm A's profits increase and firm B's profits do not change.
Isolated Island has two wind turbines producing electricity, one owned by Dick and the other owned by Harry. Quantity demanded (units per day) Price (dollars per unit) The marginal cost of producing electricity is $4 a unit. 12 11 1 The table gives the demand schedule for electricity in this area. 10 2 9 3 If Dick and Harry form a cartel and maximize their joint profit, what will be the price of electricity and the total quantity produced? 8 4 7 5 If Dick and Harry form a cartel and maximize their joint profit, the price of a unit of electricity is $ and the quantity produced is units a day. 6 7
The market inverse demand curve for thrust bearings is P = 15 – 1.5Q, where Q is measured in hundreds of bearings per day and P is the price per bearing. The marginal cost is $3. Suppose two firms, which are Bertrand competitors, produce identical thrust bearings for this market. If this market were monopolized, the market quantity would be 600 200 400 800
OPEC is a petroleum cartel, a group of oil producing countries whose objective is to coordinate and unify petroleum policies. What type of market structure is a cartel?
Consider the monopolistically competitive market structure, which has some features of a competitive market and some features of a monopoly. Complete the following table by indicating if each attribute characterizes a competitive market, a monopolistically competitive market, both, or neither. Check all that apply.
Why has the Federation of Quebec Maple Syrup Producers been a successful cartel in Quebec, Canada? Has the relatively weak government structure of Quebec allowed for this organizations success?
The demand function in a duopoly market is P(Q) = 300-0.3Q, where P is the price and Q is the total quantity demanded. Both companies have the same constant marginal cost, What is the deadweight loss if both companies maximize their profits and they are not allowed to cooperate? (MR is not MC since its not monopoly)
Breakdown of a cartel agreement Consider a town in which only two residents, Darnell and Eleanor, own wells that produce water safe for drinking. Darnell and Eleanor can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. (base to table 1) Suppose Darnell and Eleanor form a cartel and behave as a monopolist. The profit-maximizing price is $_____ per gallon, and the total output is _____ gallons. As part of their cartel agreement, Darnell and Eleanor agree to split production equally. Therefore, Darnell's profit is $_______, and Eleanor's profit is $______. Suppose that Darnell and Eleanor have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Darnell says to himself, "Eleanor and I aren't the best of friends anyway. If I increase my production to 45 gallons more than…
Price MC 500 700 900 Quantity Five firms in an industry have equal and constant marginal costs and act as a cartel, with each firm agreeing to charge a price of $9. If they each sell an equal quantity of output, each firm will earn $ type your answer in revenue. If one firm decides to increase its quantity sold by 200 units, the cheating firms revenue will increase by $ type your anwer and the remaining firms will see tir total revenue decrease by $ type your anwwer.
Suppose there are two firms in the market, Firm A and Firm B. The total market demand is given by P=40- 2.5Q, MR=40-5Q, and MC=ATC=$10. What is the profit maximizing price for a cartel? a. $30 b. $20 C. $25 d. $35
Suppose tuition fees for a university increase from £3,000 to £9,000. Afterthe increase, enrolment drops by 5%. e) Explain why setting up a cartel and maintaining collusion may be difficultin general.f) Explain how a maximum tuition fee of £9000 imposed by the governmentmay facilitate collusion between universities.