Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate 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) 6.00 0 0 5.50 45 $247.50 5.00 90 $450.00 4.50 135 $607.50 4.00 180 $720.00 3.50 225 $787.50 3.00 270 $81
Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate 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) 6.00 0 0 5.50 45 $247.50 5.00 90 $450.00 4.50 135 $607.50 4.00 180 $720.00 3.50 225 $787.50 3.00 270 $81
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter5: Elasticity
Section: Chapter Questions
Problem 7SCQ: What would the gasoline price elasticity of supply mean to UPS or FedEx?
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Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate 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.
|
|
Quantity Demanded
|
Total Revenue
|
|---|---|---|
|
(Dollars per gallon)
|
(Gallons of water)
|
(Dollars)
|
| 6.00 | 0 | 0 |
| 5.50 | 45 | $247.50 |
| 5.00 | 90 | $450.00 |
| 4.50 | 135 | $607.50 |
| 4.00 | 180 | $720.00 |
| 3.50 | 225 | $787.50 |
| 3.00 | 270 | $810.00 |
| 2.50 | 315 | $787.50 |
| 2.00 | 360 | $720.00 |
| 1.50 | 405 | $607.50 |
| 1.00 | 450 | $450.00 |
| 0.50 | 495 | $247.50 |
| 0 | 540 | 0 |
Suppose Hubert and Kate form a cartel and behave as a monopolist. The profit-maximizing price is____per gallon, and the total output is_____gallons. As part of their cartel agreement, Hubert and Kate agree to split production equally. Therefore, Hubert's profit is
_____, and Kate's profit is______.
Suppose that Hubert and Kate have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Hubert says to himself, "Kate and I aren't the best of friends anyway. If I increase my production to 45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."
After Hubert implements his new plan, the price of water______to_____per gallon. Given Kate and Hubert's production levels, Hubert's profit becomes_____and Kate's profit becomes_______.
Because Hubert has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Kate decides that she will also increase her production to 45 gallons more than the cartel amount.
After Kate increases her production, Hubert's profit becomes______, Kate's profit becomes_____, and total profit (the sum of the profits of Hubert and Kate) is now________.
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