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 $0.60 per can. Assume that neither fimm 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.
1.00
Demand
0.90
Monopoly Outcome
0.80
0.70
MC = ATC
0.60
PRICE (Dollars per can)
0.50
0.40
0.30
0.20
0.10
MR
o
0
100
200
800
900 1000
300 400 500 600 700
QUANTITY (Cans of beer)
per can. Given this
When they act as a profit-maximizing cartel, each company will produce_
cans and charges _
Information, each firm earns a daily profit of_
so the daily total industry profit in the beer market is _