ECON 1050 Chapter 15: Economics-1 (1) (dragged) 5

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salmoneagle674

17 Sep 2016

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Suppose the cheat increases its output to 3,000 units. Industry output increases by 5,000 and the price falls. For the complier, atc now exceeds the price. For the cheat, the price exceeds atc. Suppose that both increases their output to 3,000 units. Industry output is 6,000 units, the price falls. Both firms make zero economic profit the same as in perfect competition. If both comply, each firm makes million a week, If both cheat, each firm makes zero economic profit. If trick complies and gear cheats, trick incurs a loss of million and gear makes a profit of. If gear complies and trick cheats, gear incurs a loss million and trick makes a profit of.

Related Questions

Suppose that a price-taker firm has a marginal cost function given by: MC= 30+0.5q. The firm could join a cartel in its industry and agree to a quota of 5 units. The collusion drives the price of the good from $35.91 to $70.00.

Suppose that if the firm cheats on the cartel, it has no effect on the price. Calculate the producer surplus of this firm when they cheat on the cartel.

(Do not enter a "$" sign in your response. Round to the nearest two decimal places if necessary.)

harlequinplatypus501

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.

Monopoly Outcome PRICE (Dollars per can)QUANTITY (Thousands of cans of beer)DemandMRMC = ATC

When they act as a profit-maximizing cartel, each company will producecans and chargeper can. Given this information, each firm earns a daily profit of, 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 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 profit. Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the collusive agreement.

Maysâs deviation from the collusive agreement causes the price of a can of beer to toper can. Mays's profit is now, while McCoveyâs profit is now. Therefore, you can conclude that total industry profit when Mays increases its output beyond the collusive quantity.

limedog21

Suppose there are two firms (firms 1 and 2) producing good X. Firm 1 has a marginal cost of $10 per unit
of X produced, while firm 2 has a marginal cost of $20 per unit of X produced. Suppose the two firms
decide to form a cartel and have the following collusive agreement: each firm will produce q = 30. In this
case, Q = q1 + q2 and that firms always receive the same price P at any given time. (10 marks)
a) What profit will each of the firms receive at the cartel agreement? (2)
b) Does either firm have an incentive to cheat (by increasing output to q = 40)? (2)
c) What is the Nash Equilibrium in this case? (3)
d) Is there anything Firm 2 can do to keep both firms producing according to the cartel agreement? (3)
Hint: Compare the profits Firms 1 and 2 earn in the cartel agreement and the Nash. Think back to the
Coase Theorem we looked at a few weeks ago…

maroonarmadillo294

ECON 1050 Chapter 15: Economics-1 (1) (dragged) 5

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