Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm
ID: 1211826 • Letter: M
Question
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 $O.60 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 MeCovey choose to work together. When they act as a profit-maximizing cartel, each company will produce this information, each firm earns a daily profit of so the daily total industry profit in the beer market is 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 deode to work together. Both firms ir total industry profit. Now, suppose that Mays decides to break the collusion and in produce the amount set under the collusive agreement.Explanation / Answer
1. 10 units each.
If the form a cartel, then the start behaving like a monopolist, as there is only one seller. The profit maximising level of output is where the MR = MC, which is at 20 units and they would divide output evenly, thus 20/2 = 10.
2. $80.
The corresponding point on the demand with output level 20units is $0.80
3. $2 each.
Profit = TR - TC.
TR = P*Q = 0.80*10 = 8
TC = 0.6*10 = 6
Profit = 8 - 6 =2.
4. Industry profit = profit of McCovey + profit of Mays
Industry profit = 2 + 2 = $4.