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
<u>Total profit = $(18 + 12) = $30 </u>
therefore
Total Industry Profit Decreases
