2. Deviating from the collusive outcome 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 $0.80 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. (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. 2.00 1.80 1.60 Monopoly Outcome Demand 1.40 1.20 1.00 PRICE (Dollars per can) MC = ATC 0.80 0.60 0.40 0.20 MR 10 20 30 40 50 60 70 80 90 100 QUANTITY (Cans of beer)When they act as a profitmaximizing cartel, each company will produce_ cans and charge $1.20 per can. Given this information, each firm earns a daily profit of $10.00 , so the daily total industry profit in the beer market is $1.20 . Oligopolists 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 decide to work together. Both firms initially agree half the quantity that maximizes total industry profit. ' cCovey continues to produce the amount set under the Now, suppose that Mays decides to break the collusion and increase its output by collusive agreement. _ Increase Mays's deviation from the collusive agreement causes the price of a can of beer to decrease V to $1.10 per can. Mays's profit is now _ while McCovey's prot is now . Therefore, you can conclude that total industry profit decreases V when Mays increases its output beyond the collusive quantity. Grade It Now Save & Continue