Consider a town in which only two residents, Gilberto and Juanita, own wells that produce water safe for drinking. Gilberto and Juanita can pump andsell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.PriceQuantity DemandedTotal Revenue(Dollars per gallon)(Gallons of water)(Dollars)4.804.4045$198.004.0090$360.003.60135$486.003.20180$576.002.80225$630.002.40270$648.002.00315$630.001.60360$576.001.20405$486.000.80450$360.000.40495$198.00540Suppose Gilberto and Juanita form a cartel and behave as a monopolist. The profit-maximizing price is $per gallon, and the totaloutput isgallons. As part of their cartel agreement, Gilberto and Juanita agree to split production equally. Therefore, Gilberto's profit is$and Juanita's profit is $Suppose that Gilberto and Juanita have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopolyquantity. Then one night before going to sleep, Gilberto says to himself, "Juanita and I aren't the best of friends anyway. If I increase my production to45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Gilberto implements his new plan, the price of waterto $per gallon. Given Juanita and Gilberto's productionlevels, Gilberto's profit becomesand Juanita's profit becomes $ Because Gilberto has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Juanita decidesthat she will also increase her production to 45 gallons more than the cartel amount.After Juanita increases her production, Gilberto's profit becomesJuanita's profit becomes $and total profit (thesum of the profits of Gilberto and Juanita) is now $True or False: Based on the fact that both Gilberto and Juanita increased production from the initial cartel quantity, you know that the output effectwas smaller than the price effect at that quantity.TrueFalseNote that Gilberto and Juanita started by behaving cooperatively. However, once Gilberto decided to cheat, Juanita decided to cheat as well. In otherwords, Juanita's output decisions are based on Gilberto's actions.This behavior is an example of

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Consider a town in which only two residents, Gilberto and Juanita, own wells that produce water safe for drinking. Gilberto and Juanita can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 4.80 4.40 45 $198.00 4.00 90 $360.00 3.60 135 $486.00 3.20 180 $576.00 2.80 225 $630.00 2.40 270 $648.00 2.00 315 $630.00 1.60 360 $576.00 1.20 405 $486.00 0.80 450 $360.00 0.40 495 $198.00 540 Suppose Gilberto and Juanita form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total putput is gallons. As part of their cartel agreement, Gilberto and Juanita agree to split production equally. Therefore, Gilberto's profit is and Juanita's profit is $

Consider a town in which only two residents, Gilberto and Juanita, own wells that produce water safe for drinking. Gilberto and Juanita can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 4.80 4.40 45 $198.00 4.00 90 $360.00 3.60 135 $486.00 3.20 180 $576.00 2.80 225 $630.00 2.40 270 $648.00 2.00 315 $630.00 1.60 360 $576.00 1.20 405 $486.00 0.80 450 $360.00 0.40 495 $198.00 540 Suppose Gilberto and Juanita form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total putput is gallons. As part of their cartel agreement, Gilberto and Juanita agree to split production equally. Therefore, Gilberto's profit is and Juanita's profit is $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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