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 $0.60 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.

1.00 Demand 0.90 0.80 Monopoly Outcome PRICE (Dollars per can) 0.70 MC = ATC 0.60 0.50 0.40 0.30 0.20 0.10 0 MR 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Cans of beer)