beer is constant and equals $0.80 per can. Assume that neither firm had any star
ID: 1227721 • Letter: B
Question
beer 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 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 nocooperatively 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 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.Explanation / Answer
1. Profit maximising level of output is attained where the marginal revenue equals the marginal cost. The corresponding point on the demand curve then determines the price.
2. Each company would produce 5 units of output. Because the industry would produce 10 units and given that each distribute the output equally amongst each other so each producer would produce 5 units.
3. Charge $1.20 per can. The corresponding price on the demand curve is $1.20
4. Profit = total revenue - total cost.
TR = 5*1.20 = $6
TC = 0.80*5 = 4
Profits of each firm is = 6 - 4 = $2.
5.Industry profit = profit of May's + profit of McCovey
Industry profit = 2 + 2 = $4.
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