Consider a town in which only two residents, Lorenzo and Neha, own wells that produce water safe for drinking. Lorenzo and Neha 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) 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 Quantity Demanded (Gallons of water) 0 45 90 135 180 225 270 315 360 405 450 495 540 Total Revenue (Dollars) 0 $247.50 $450.00 $607.50 $720.00 $787.50 $810.00 $787.50 $720.00 $607.50 $450.00 $247.50 0 Suppose Lorenzo and Neha form a cartel and behave as a monopolist. The profit-maximizing price is $ output is $ per gallon, and the total gallons. As part of their cartel agreement, Lorenzo and Neha agree to split production equally. Therefore, Lorenzo's profit is , and Neha's profit is $ Suppose that Lorenzo and Neha 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, Lorenzo says to himself, "Neha 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 Lorenzo implements his new plan, the price of water levels, Lorenzo's profit becomes to and Neha's profit becomes After Neha increases her production, Lorenzo's profit becomes $ of the profits of Lorenzo and Neha) is now $ per gallon. Given Neha and Lorenzo's production Because Lorenzo has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Neha decides that she will also increase her production to 45 gallons more than the cartel amount. Neha's profit becomes I and total profit (the sum
Consider a town in which only two residents, Lorenzo and Neha, own wells that produce water safe for drinking. Lorenzo and Neha 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) 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 Quantity Demanded (Gallons of water) 0 45 90 135 180 225 270 315 360 405 450 495 540 Total Revenue (Dollars) 0 $247.50 $450.00 $607.50 $720.00 $787.50 $810.00 $787.50 $720.00 $607.50 $450.00 $247.50 0 Suppose Lorenzo and Neha form a cartel and behave as a monopolist. The profit-maximizing price is $ output is $ per gallon, and the total gallons. As part of their cartel agreement, Lorenzo and Neha agree to split production equally. Therefore, Lorenzo's profit is , and Neha's profit is $ Suppose that Lorenzo and Neha 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, Lorenzo says to himself, "Neha 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 Lorenzo implements his new plan, the price of water levels, Lorenzo's profit becomes to and Neha's profit becomes After Neha increases her production, Lorenzo's profit becomes $ of the profits of Lorenzo and Neha) is now $ per gallon. Given Neha and Lorenzo's production Because Lorenzo has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Neha decides that she will also increase her production to 45 gallons more than the cartel amount. Neha's profit becomes I and total profit (the sum
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider a town in which only two residents, Lorenzo and Neha, own wells that produce water safe for drinking. Lorenzo and Neha 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)
6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
Quantity Demanded
(Gallons of water)
0
45
90
135
180
225
270
315
360
405
450
495
540
Total Revenue
(Dollars)
0
$247.50
$450.00
$607.50
$720.00
$787.50
$810.00
$787.50
$720.00
$607.50
$450.00
$247.50
0
Suppose Lorenzo and Neha form a cartel and behave as a monopolist. The profit-maximizing price is $
output is
$
per gallon, and the total
gallons. As part of their cartel agreement, Lorenzo and Neha agree to split production equally. Therefore, Lorenzo's profit is
and Neha's profit is $
Suppose that Lorenzo and Neha have been successfully operating as a cartel. The each charge the monopoly price and sell half of the monopoly
quantity. Then one night before going to sleep, Lorenzo says to himself, "Neha 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 Lorenzo implements his new plan, the price of water
levels, Lorenzo's profit becomes $
and Neha's profit becomes $
per gallon. Given Neha and Lorenzo's production
Because Lorenzo has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Neha decides
that she will also increase her production to 45 gallons more than the cartel amount.
After Neha increases her production, Lorenzo's profit becomes
of the profits of Lorenzo and Neha) is now $
Neha's profit becomes
, and total profit (the sum
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