Consider a town in which only two residents, Jacques and Kyoko, own wells that produce water safe for drinking. Jacques and Kyoko 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 $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 Jacques and Kyoko 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, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is , and Kyoko's profit is . Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko 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 Jacques implements his new plan, the price of water to per gallon. Given Kyoko and Jacques's production levels, Jacques's profit becomes and Kyoko's profit becomes . Because Jacques has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Kyoko decides that she will also increase her production to 45 gallons more than the cartel amount. After Kyoko increases her production, Jacques's profit becomes , Kyoko's profit becomes , and total profit (the sum of the profits of Jacques and Kyoko) is now . True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. True False Note that Jacques and Kyoko started by behaving cooperatively. However, once Jacques decided to cheat, Kyoko decided to cheat as well. In other words, Kyoko's output decisions are based on Jacques's actions. This behavior is an example of .

Consider a town in which only two residents, Jacques and Kyoko, own wells that produce water safe for drinking. Jacques and Kyoko 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 $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 Jacques and Kyoko 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, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is , and Kyoko's profit is . Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko 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 Jacques implements his new plan, the price of water to per gallon. Given Kyoko and Jacques's production levels, Jacques's profit becomes and Kyoko's profit becomes . Because Jacques has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Kyoko decides that she will also increase her production to 45 gallons more than the cartel amount. After Kyoko increases her production, Jacques's profit becomes , Kyoko's profit becomes , and total profit (the sum of the profits of Jacques and Kyoko) is now . True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. True False Note that Jacques and Kyoko started by behaving cooperatively. However, once Jacques decided to cheat, Kyoko decided to cheat as well. In other words, Kyoko's output decisions are based on Jacques's actions. This behavior is an example of .

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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	$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 Jacques and Kyoko 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, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is

, and Kyoko's profit is

Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko 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 Jacques implements his new plan, the price of water to

per gallon. Given Kyoko and Jacques's production levels, Jacques's profit becomes

and Kyoko's profit becomes

Because Jacques has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Kyoko decides that she will also increase her production to 45 gallons more than the cartel amount.

After Kyoko increases her production, Jacques's profit becomes

, Kyoko's profit becomes

, and total profit (the sum of the profits of Jacques and Kyoko) is now

True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity.

True

False

Note that Jacques and Kyoko started by behaving cooperatively. However, once Jacques decided to cheat, Kyoko decided to cheat as well. In other words, Kyoko's output decisions are based on Jacques's actions.

This behavior is an example of .

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Suppose Jacques and Kyoko form a cartel and behave as a monopolist. The profit-maximizing price is $
per gallon, and the total
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gallons. As part of their cartel agreement, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is
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Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko and I aren't the best of friends anyway. If I increase my production to
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45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."
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After Jacques implements his new plan, the price of water
to $
per gallon. Given Kyoko and Jacques's production
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levels, Jacques's profit becomes $
and K
becomes s
decreases
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Because Jacques has deviated from the cartel agreement a
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I his output of water to 45 gallons more than the cartel amount, Kyoko decides
that she will also increase her production to 45 gallons mole uran une artel amount.
After Kyoko increases her production, Jacques's profit becomes $
, Kyoko's profit becomes $
and total profit (the
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sum of the profits of Jacques and Kyoko) is now $
True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was
larger than the price effect at that quantity.
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