6. The cartel and the problem of cheatingMays and McCovey are beer-brewing companies that operate in a duopoly (two-firm aligopoly). The daily marginal cost (MC) of producing a can ofbeer is constant and equals $0.80 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for eachfirm.Suppose that Mays and McCovey form a certel, and the firms divide the output evenly. (Note: This is only for convenience: nothing in this modelrequires that the two companies must equally share the output.)Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays andMcCovey choose to work together.PRICE (Dollars per can)2.001.801.60 Demand1.401.201.000.800.600.400.2000+15MR+30 45 60 75 90 105 120QUANTITY (Thousands of cans of beer)MC = ATC135 150Monopoly Outcome cans and charge Sso the daily total industry profit in the beer market is SWhen they act as a profit-maximizing cartel, each company will produceinformation, each firm earns a daily profit of SOligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume thetwo companies form a cartel and decide to work together. Both firms Initially agree to produce half the quantity that maximizes total Industry profit.Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under thecollusive agreement.Mays's deviation from the collusive agreement causes the price of a can of beer towhile McCovey's profit is now$Mays increases its output beyond the collusive quantity.per can. Given thisper can. Mays's profit is nowwhenTherefore, you can conclude that total Industry profit1. DECREASE/INCREASE2. DECREASES/INCREASESDO NOT FORGET TO PLOT ON GRAPH MONOPOLYOUTCOMEDROP DOWNS ARE:

Oligopoly is a form of market organization in which there are few sellers of a homogenous or…

When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of S cans and charge S so the daily total industry profit in the bear market is S per can. Given this Oligopolists often beheve 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. Mays's deviation from the collusive agreement causes the price of a can of beer to while McCovey's profit is now S S 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

When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of S cans and charge S so the daily total industry profit in the bear market is S per can. Given this Oligopolists often beheve 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. Mays's deviation from the collusive agreement causes the price of a can of beer to while McCovey's profit is now S S 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

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 3SCQ: Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal...

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Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.
Ma3. You operate in a duopoly in which you and a rival must simultaneously decide what price to charge for the same homogeneous product. Assume each you and your rival can choose a “low price” or a “high price”. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3 million. If you charge different prices, the one charging the high price loses $5 million and the one charging the low price makes $5 million. What is the Nash equilibrium for the non-repeated version of this game? Now suppose the game is infinitely repeated. If the interest rate is 10%, can you do better than you could in the non-repeated version of this game? If your answer is “yes”, provide the players’ strategies and any other conditions that must hold.
When comparing two firms operating as a cartel/colluding and two firms competing in Cournot competition, given the firms face the same inverse market demand and marginal cost is the same for both firms in either situation, which of the following is true? а. The total profit is the same in Cournot competition and collusion. O b. Total output is higher in collusion than in Cournot competition and the price is lower in collusion than in Cournot Competition. Ос. The total profit is lower in Cournot competition than in collusion. O d. Total output is lower in collusion than in Cournot competition and the price is higher in collusion than in Cournot Competition.
2. Deviating from the collusive outcome Stargell and Schmidt are 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 Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dolars per can) 1.00 090 080 0.70 080 0.50 6.40 0.30 0:30 6.10 0 Demand D 20 40 MR 60 00 100 120 140 QUANTITY (Cans of beer) MC ATC 140 160 200 Monopoly Outcome
2. Deviating from the collusive outcome Stargell and Schmidt are 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 Stargell and Schmidt 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 Stargell and Schmidt choose to work together. PRICE (Dollars per can) 1.00 0.90 080 0.70 0.60 0.50 0:40 0.30 0.20 0.10 0 Demand 20 40 MC ATC MR 60 80 100 120 140 160 180 200 QUANTITY (Cans of beer) When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of S…
2. Ryan and Zheka produce the same homogeneous product and each has constant marginal costs of \$7. Market demand is linear, with vertical intercept 60 and horizontal intercept 30. Ryan and Zheka are Bertrand competitors, so pricing is important to them. What price will each charge in the unique Nash equilibrium of this Bertrand duopoly? a) Both charge a price of \$6. b) Both charge a price of \$7. c) Both charge a price of \$20. d) One charges \$7, the other stays out of the market.
2. Deviating from the collusive outcome Stargell and Schmidt are 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 $0.80 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Stargell and Schmidt 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 Stargell and Schmidt choose to work together. ? PRICE (Dollars per can) 1.20 1.00 0.80 0.60 0.40 0.20 ༞ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ ༔ Demand MR MC = ATC 0 0 90 180 270 360 450 540 630 720 810 900 QUANTITY (Cans of beer) + Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce charge $ per can.…
3. The dancing machine industry is a duopoly. The two firms, Chuckie B Corp. and Gene Gene Dancing Machines, compete through Cournot quantity-setting competition. The demand curve for the industry is P = 100 – Q, where Q is the total quantity produced by Chuckie B and Gene Gene. Currently, each firm has marginal cost of $40 and no fixed cost. Find the equilibrium price, quantity produced by each firm, and the profit of each firm. Now suppose the two firms were to form a cartel. What would be the quantity produced by each firm in the cartel agreement? What would be the profit of each firm? Suppose that Chuckie B was considering cheating on the cartel agreement and it guesses that Gene Gene is going to stick to the cartel agreement. What is the profit maximizing output of Chuckie B in that case? Is the cartel sustainable?
1. Which market structure(s) will have zero economic profits in the long run? 2. Which market structure(s) will be a price maker and have barriers to entry? 3. There are currently 8 firms in a particular market. There firm sales are given in the table below. (1) What is the four-firm concentration ratio for this industry? (2) Would you classify it as an oligopoly? Firm 1 2 3 4 5 6 7 8 Sales $1,000 $1,500 $2,000 $2,500 $3,000 $1,000 $500 $2,500 4. Although market structures vary widely in their characteristics, (1) what is one common aspect among all of them? (2) What is the potential calculation for your previous answer (Answers in 4.1)? 5. In the long run, (1) which market structures are likely to have their average cost curve just sit on top of their demand curve? (2) What does this imply for each market structure? (3) Are there any differences in the market structures you gave in your previous answer? 6. What market structure(s) are likely to cause a net loss to societal welfare?
3. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) 4.20 3.85 3.50 3.15 2.80 2.45 2.10 1.75 1.40 1.05 0.70 0.35 0 Quantity Demanded (Gallons of water) 0 40 80 120 160 200 240 280 320 360 400 440 480 Suppose Sean and Yvette form a cartel and behave as a monopolist. The profit-maximizing price is $ is per gallon, and the total output gallons. As part of their cartel agreement, Sean and Yvette agree to split production equally. Therefore, Sean's profit is $ and Yvette's profit is $ Total Revenue Suppose that Sean and Yvette have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Sean says to…
The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. Let's assume that the Canadian halibut processing industry there are only two firms(duopoly). Under such a market structure, if one of the halibut processing firm increases its price, then the other firm in the halibut processing industry can: keep the price of its processed halibut constant and thus increase its market share. keep its price of its processed halibut constant and thus decrease its market share. decrease its price of its processed halibut and thus decrease its market share. try to achieve economies of scale. increase its price of its processed halibut and thus increase its market share.
3. Breakdown of a cartel agreement Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. is Price (Dollars per gallon) 5.40 4.95 4.50 4.05 3.60 3.15 2.70 2.25 1.80 1.35 $ 0.90 0.45 0 Suppose Hubert and Kate form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output gallons. As part of their cartel agreement, Hubert and Kate agree to split production equally. Therefore, Hubert's profit is and Kate's profit is $ Quantity Demanded (Gallons of water) 0 25 50 75 100 125 150 175 200 225 250 275 300 Suppose that Hubert and Kate have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Hubert says to himself, "Kate…