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. 2.00 1.80 Demand Monopoly Outcome 1.60 1.40 1.20 PRICE (Dollars per can) 1.00 MC = ATC 0.80 0.60 0.40 0.20 MR 0 80 160 240 320 400 480 560 640 720 800 QUANTITY (Cans of beer)when they act as a profitmaximizing cartel, each company will produce: cans and charge per can. Given this information, each firm earns a daily profit o_ , so the daily total industry profit in the beer market is . Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total prot 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 prot. Now, suppose that Stargell decides to break the collusion and increase its output by 50%, while Schmidt continues to produce the amount set under the collusive agreement. Stargell's deviation from the collusive agreement causes the price of a can of beer to V to per can. Stargell's prot is now , while Schmidt's profit is now . Therefore, you can conclude that total industry profit V when Stargell increases its output beyond the collusive quantity. Oligopolists often behave noncooperatively and act in their own selfinterest even though this decreases total prot in the market. Again, assume the two companies form a cartel and decide to work together. Both rms initiallyr agree to nroduce half the quantity that maximizes total industry prot. Now, suppose that Stargell decides to break the collusion and increase its output by '- .chmidt continues to produce the amount set under the collusive agreement. increase Stargell's deviation from the collusive agreement causes the price of a can of beer to v to per can. Stargell's prot is now , while Schmidt's profit is now . Therefore, you can conclude that total industry profit V when Stargell increases its output beyond the collusive quantity. Oligopolists often behave noncooperatively and act in their own selfinterest even though this decreases total prot 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 prot. Now, suppose that Stargell decides to break the collusion and increase its output by 50%, while Schmidt continues to produce the amount set under the collusive agreement. decreases increases Stargell's deviation from the collusive agreement causes the price of a can of beer to V to per c. prot is now , while Schmidt's profit is now . Therefore. you can conclude that total industry profit V when Stargell increases its output beyond the collusive quantity. ?. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example. the upperright ce|| shows that if Antonio chooses Up and Tn'nity chooses Down, Antonio will receive a payoff of 6 and Tn'nity will receive a payoff of 3. Trinity Up Down Up a: s a, 3 Antonio Down 4: 3 5, 5 In this game, the only dominant strategy is for V to choose V . The outcome reecting the unique Nash equilibrium in this game is as follows: Antonio chooses V and Trinity chooses V . ?. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example, the upperright cell shows that if Antonio chooses Up and Trinity chooses Down, Antonio will receive a payoff of 6 and Trinity will receive a payoff of 3. Trinity Up Down Up a: s a 3 Antonio Down 4: 3 5 5 In this game, the only dominant strategy is for V to choose V . The outcome reecting the unique Nash equilibrium in this game is as follows: Antonio chooses V and Trinity chooses V . 7'. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example. the upperright cell shows that if Antonio chooses Up and Trinity chooses Down, Antonio will receive a payoff of 6 and Trinity will receive a payoff of 3. Trinity Up Down Up a: s a, 3 Antonio Down 4: 3 5, 5 In this game, the only dominant strategy is for V to choose V . The outcome reecting the unique Nash equilibrium in this game is as follows: Antonio chooses V and Trinity chooses V . ?. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For exampler the upperright cell shows that if Antonio chooses Up and Trinity chooses Down, Antonio will receive a payoff of 6 and Trinity will receive a payoff of 3. Trinity Up Down Up a: s a, 3 Antonio Down 4: 3 5. 5 In this game, the only dominant strategy is for V to choose V . - Up The outcome reecting the unique Nash equilibrium in this game is as follows: Antonio chooses V and Trinity chooses V . ?. Solving for dominant strategies and the Nash equilibrium Suppose Antonio and Trinity are playing a game that requires both to simultaneously choose an action: Up or Down. The payoff matrix that follows shows the earnings of each person as a function of both of their choices. For example, the upperright cell shows that if Antonio chooses Up and Trinity chooses Down, Antonio will receive a payoff of 6 and Trinity will receive a payoff of 3. Trinity Up Down Up a: s a, 3 Antonio Down 4: 3 5, 5 In this game, the only dominant strategy is for V to choose V . - UP The outcome reecting the unique Nash equilibrium in this game is as follows: Antonio chooses V and Trinity chooses V