please help Mays and McCovey are beer-brewing companies that operate in a duopol
ID: 1193597 • Letter: P
Question
please help 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 $0.20 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. 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. 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. Mayss deviation from the collusive agreement causes the price of a can of beer to per can. Mayss profit is now while McCoveys profit is now Therefore, you can conclude that total industry profit when Mays increases its output beyond the collusive quantity.Explanation / Answer
a)
1. 320,000/2 = 160,000 (MR and MC intersects at quantity = 320)
2. $.6 (Price at qty = 160,000 = .6)
3. $64,000 (160000 * $0.4)
4. $128,000
b)
1. decrease
2. $.5 ( see demand price curve for quantity = 320 +.5*160 = 400)
3. $72,000 ( Formula used: 240000* (.5 - .2) = 240000*.3 =$72,000 )
4. $48,000 (Formula used = 160000 *.3 = $48,000)
5. decrease (total profit = 72000+ 48000 = 120,000)
Place point X on demand curve (blue line where price = .6. This point is same if you draw vertical line from point where MR = MC)
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