6. The cartel and the problem of cheating Mays and McCovey are beerbrewing companies that operate in a duopoly {twofin'n oligopoly]. The daily marginal cost (MC) of producing a can of beer is constant and equals 50.80 per can. Assume that neither rm had any startup costs, so marginal cost equals average total cost {AH-C] for each n'n. Suppose that Mays and McCovey fon'n a cartel, and the rms 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 Ember} on the following graph to indicate the prot-maximizing pn'ce and combined quantity of output ifMays and McCoyey choose to work together. (3 2.0:I - -+ 1.50 - ' Lao Demand Monopoly Outcome 1.4-0 1.20 1.0!!I - MC = ATC 0.50 PRIC E {Dollars per can) 0.50 0.4-0 0.2%:I I MR 0 '- l i l i l l i 0 25 50 T5 100 125 150 175 20!:I 22.5 250 QUAN'HTY (Thousands 01' cans of beer) When they act as a prot-maximizing cartel, each company will produce: cans and charge per can. Given this information, each rm earns a daily profit o_, so the daily total industry prot in the beer market is . 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 to produce half the quantity that maximizes total industry prot. Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCoyey continues to produce the amount set under the collusive agreement. Mays's deviation from the collusive agreement causes the price of a can of beerto Y to per can. Mays's prot is now 3 , while McCovey's profit is now . Therefore, you can conclude that total industry profit '7 when Hays increases its output beyond the collusive quantity