Question

Mays's deviation from the collusive agreement causes the price of a can of beer to 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.

Answer 1

Answer:

Total Industry Profit Decreases

Explanation:

Complete question:

Part a & b

In pictures attached

Part c

Mays's deviation from the collusive agreement causes the price of a can of beer to (increase/decrease?) to $___________________  per can. Mays's profit is now $______________, while McCovey's profit is now $______________. Therefore, you can conclude that total industry profit (increases/decreases?)  when Mays increases its output beyond the collusive quantity.

Answer:

Part a b and c

Monopoly outcome for both working together graph attached in third picture

for the remaining calculations

b) cartel output = 160

individual companies produce

80 cans = $0.60/cane

individual firm's daily profit = Q x (P - ATC) =

individual firm's daily profit=80 x $(0.6 - 0.4) = 80 x $0.2 = $16

Total profit = 2 x $16 = $32

(b) May deviates and increases output to 80 x 1.5 = 120 cans.

Total output = 120 + 80 = 200

Leading price of beer to Decrease to $0.55

May's profit = 120 x $(0.55 - 0.4)

May's profit= 120 x $0.15 = $18

McCovey's profit = 80 x $(0.55 - 0.4) = 80 x $0.15

McCovey's profit= $12

Total profit = $(18 + 12) = $30

therefore

Total Industry Profit Decreases