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 (Dollars per gallon) 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 quantity Th 0.50 0.25 0 Quantity Demanded (Gallons of water) 0 50 100 150 200 I 250 300 350 400 450 500 550 600 Suppose Jacques and Kyoko form a cartel and behave as a monopolist. The profit-maximizing price is $ output is $ Total Revenue (Dollars) 0 $137.50 $250.00 $337.50 $400.00 $437.50 $450.00 $437.50 $400.00 $337.50 $250.00 $137.50 0 per gallon, and the total 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 Jacque himself "Kyoko
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 (Dollars per gallon) 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 quantity Th 0.50 0.25 0 Quantity Demanded (Gallons of water) 0 50 100 150 200 I 250 300 350 400 450 500 550 600 Suppose Jacques and Kyoko form a cartel and behave as a monopolist. The profit-maximizing price is $ output is $ Total Revenue (Dollars) 0 $137.50 $250.00 $337.50 $400.00 $437.50 $450.00 $437.50 $400.00 $337.50 $250.00 $137.50 0 per gallon, and the total 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 Jacque himself "Kyoko
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3. Breakdown of a cartel agreementConsider 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.
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Transcribed Image Text:3. Breakdown of a cartel agreement
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)
3.00
2.75
50
$137.50
2.50
100
$250.00
2.25
150
$337.50
2.00
200
$400.00
1.75
250
$437.50
1.50
300
$450.00
1.25
350
$437.50
1.00
400
$400.00
0.75
450
$337.50
0.50
500
$250.00
0.25
550
$137.50
600
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
50 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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