Considera town in which only two residents, Van and Amy, own wells that produce water safe for drinking. Van and Amy can pump and sell as muchwater 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)3.603.303.002.702.402.101.801.501.200.900.600.300Quantity Demanded(Gallons of water)03570105140175210245280315350385420Total Revenue(Dollars)0$115.50$210.00$283.50$336.00$367.50$378.00$367.50$336.00$283.50$210.00$115.500 Suppose Van and Amy form a cartel and behave as a monopolist. The profit-maximizing price is210 gallons. As part of their cartel agreement, Van and Amy agree to split production equally. Therefore, Van's profit isAmy's profit is$189.00.Suppose that Van and Amy 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, Van says to himself, "Amy and I aren't the best of friends anyway. If I increase my production to 35 gallonsmore than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Van implements his new plan, the price of water decreasesprofit becomesand Amy's profit becomes $After Amy increases her production, Van's profit becomes Sthe profits of Van and Amy) is now SBecause Van has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Amy decides thatshe will also increase her production to 35 gallons more than the cartel amount.True$1.80 per gallon, and the total output is$189.00, andtoFalse$1.50 per gallon. Given Amy and Van's production levels, Van'sThis behavior is an example ofAmy's profit becomes STrue or False: Based on the fact that both Van and Amy increased production from the initial cartel quantity, you know that the output effect wassmaller than the price effect at that quantity.and total profit (the sum ofNote that Van and Amy started by behaving cooperatively. However, once Van decided to cheat, Amy decided to cheat as well. In other words, Amy'soutput decisions are based on Van's actions.

Consider a town in which only two residents, Van and Amy, own wells that produce water safe for drinking. Van and Amy 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) 3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 1.20 0.90 0.60 0.30 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 DOE Total Revenue (Dollars) 0 $115.50 $210.00 $283.50 $336.00 $367.50 $378.00 $367.50 $336.00 $283.50 $210.00 2115 FA

Consider a town in which only two residents, Van and Amy, own wells that produce water safe for drinking. Van and Amy 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) 3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 1.20 0.90 0.60 0.30 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 DOE Total Revenue (Dollars) 0 $115.50 $210.00 $283.50 $336.00 $367.50 $378.00 $367.50 $336.00 $283.50 $210.00 2115 FA

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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