1. Consider a market for water with two firms. We assume two firms can produce the good without any cost (TC = 0). The market demand schedule is given as: Quantity (gallon) 30 Price ($) 90 40 80 50 70 60 70 60 50 80 40 90 30 100 20 110 10 Cartel: Assume that two firms are colluding, so both firms agree upon a contract that they produce the same amount of output.

1. Consider a market for water with two firms. We assume two firms can produce the good without any cost (TC = 0). The market demand schedule is given as: Quantity (gallon) 30 Price ($) 90 40 80 50 70 60 70 60 50 80 40 90 30 100 20 110 10 Cartel: Assume that two firms are colluding, so both firms agree upon a contract that they produce the same amount of output.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

*YOU ONLY NEED TO ANSWER QUESTION B*

1. Consider a market for water with two firms. We assume two firms can produce the good
without any cost (TC= 0). The market demand schedule is given as:
Quantity (gallon)
Price ($)
30
90
40
80
50
70
60
60
70
50
80
40
90
30
100
20
110
10
Cartel:
Assume that two firms are colluding, so both firms agree upon a contract that they produce the
same amount of output.
a. How much would each firm produce if they form the cartel? Why?

b. Find the cartel market outcome: market quantity, price, and each firm's profit.

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