Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 6.00 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 0.50 495 247.50 540 Suppose Eric and Ginny 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, Eric and Ginny agree to split production equally. Therefore, Eric's profit is S |, and Ginny's profit is $ Suppose that Eric and Ginny 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, Eric says to himself, "Ginny 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." ▼ to $ and Ginny's profit becomes $ After Eric implements his new plan, the price of water per gallon. Given Ginny and Eric's production levels, Eric's profit becomes s Because Eric has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Ginny decides that she will also increase her production to 45 gallons more than the cartel amount. Ginny's profit becomes $ After Ginny increases her production, Eric's profit becomes $ of the profits of Eric and Ginny) is now S and total profit (the sum

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a town in which only two residents, Eric and Ginny, own wells that produce water safe for drinking. Eric and Ginny 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.

Note: the second picture of the last blank has 4 option

A. nash equilibrium

B tying

c resale price maintenance

D predatory pricing

True or False: Based on the fact that both Eric and Ginny increased production from the initial cartel quantity, you know that the output effect was
smaller than the price effect at that quantity.
O True
O False
Eric and Ginny have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they both
realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider Eric's
profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel amount.)
Neither Eric nor Ginny has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an example of

Price
Quantity Demanded
Total Revenue
(Dollars per gallon)
(Gallons of water)
(Dollars)
6.00
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
540
Suppose Eric and Ginny 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, Eric and Ginny agree to split production equally. Therefore, Eric's profit is $
and
Ginny's profit is $
Suppose that Eric and Ginny 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, Eric says to himself, "Ginny 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 Eric implements his new plan, the price of water
to $
per gallon. Given Ginny and Eric's production levels,
Eric's profit becomes S
and Ginny's profit becomes$
Because Eric has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Ginny decides that
she will also increase her production to 45 gallons more than the cartel amount.
After Ginny increases her production, Eric's profit becomes $
of the profits of Eric and Ginny) is now s
, Ginny's profit becomes $
and total profit (the sum

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