The profit-maximizing price and combined quantity of output is indicated in the demand curve by using a black point (plus symbol).
<h3>What is a cartel?</h3>A cartel can be defined as a formal agreement between two or more business firms (producers) of a particular product or service, that's formed to control production, sales and pricing in an oligopolistic industry.
At equilibrium in a cartel, marginal revenue is equal to marginal cost (MR = MC). Thus, the profit-maximizing price and combined quantity of output should be calculated from the demand curve as illustrated in the image attached below.
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<u>Complete Question:</u>
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 $0.40 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.
