cans and charge 5 so the daily total industry profit in the beer market is S5 When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of 5 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. Using the demand curve shown in the previous graph, find the price associated with this new total level of combined output (the price at which this new level of output would be purchased by consumers). Mays's deviation from the collusive agreement causes the price of a can of beer to while McCovey's profit is now 5 Mays increases its output beyond the collusive quantity. to S Therefore, you can conclude that total industry profit per can. Mays's profit is now when

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cans and charge
so the daily total industry profit in the beer market is
When they act as a profit-maximizing cartel, each company will produce
information, each firm earns a daily profit of 5
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. Using the demand curve shown in the previous graph, find the price associated with this new total level of combined output (the
price at which this new level of output would be purchased by consumers).
Mays's deviation from the collusive agreement causes the price of a can of beer to
], while McCovey's profit is now 5
Mays increases its output beyond the collusive quantity.
per can. Mays's profit is now
when
]. Therefore, you can conclude that total industry profit
Transcribed Image Text:cans and charge so the daily total industry profit in the beer market is When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of 5 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. Using the demand curve shown in the previous graph, find the price associated with this new total level of combined output (the price at which this new level of output would be purchased by consumers). Mays's deviation from the collusive agreement causes the price of a can of beer to ], while McCovey's profit is now 5 Mays increases its output beyond the collusive quantity. per can. Mays's profit is now when ]. Therefore, you can conclude that total industry profit
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 $0.40 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.
PRICE (Dollars per can)
1.00
0.90
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0
Demand
20
MR
30 40 50
70
QUANTITY (Cans of beer)
80
MC-ATC
100
Monopoly Outcome
Transcribed Image Text: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 $0.40 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. PRICE (Dollars per can) 1.00 0.90 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 Demand 20 MR 30 40 50 70 QUANTITY (Cans of beer) 80 MC-ATC 100 Monopoly Outcome
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