Homework Help is Here – Start Your Trial Now!
Business
Economics
Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars)

Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars)

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question
Consider a town in which only two residents, Charles and Dina, own wells that produce water safe for drinking. Charles and Dina 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) 3.60 3.30 35 115.50 3.00 70 210.00 2.70 105 283.50 2.40 140 336.00 2.10 175 367.50 1.80 210 378.00 1.50 245 367.50 1.20 280 336.00 0.90 315 283.50 0.60 350 210.00 0.30 385 115.50 420 Suppose Charles and Dina 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, Charles and Dina agree to split production equally. Therefore, Charles's profit is 2$ and Dina's profit is $ Suppose that Charles and Dina 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, Charles says to himself, "Dina and I aren't the best of friends anyway. If I increase my production by 35 gallons, I can increase my profit even though her profit goes down. I will do that starting tomorrow."
Transcribed Image Text:Consider a town in which only two residents, Charles and Dina, own wells that produce water safe for drinking. Charles and Dina 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) 3.60 3.30 35 115.50 3.00 70 210.00 2.70 105 283.50 2.40 140 336.00 2.10 175 367.50 1.80 210 378.00 1.50 245 367.50 1.20 280 336.00 0.90 315 283.50 0.60 350 210.00 0.30 385 115.50 420 Suppose Charles and Dina 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, Charles and Dina agree to split production equally. Therefore, Charles's profit is 2$ and Dina's profit is $ Suppose that Charles and Dina 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, Charles says to himself, "Dina and I aren't the best of friends anyway. If I increase my production by 35 gallons, I can increase my profit even though her profit goes down. I will do that starting tomorrow."
After Charles implements his new plan, the price of water to $ per gallon. Given Dina and Charles's production levels, Charles's profit becomes $ and Dina's profit becomes $ Because Charles has deviated from the cartel agreement and increased his output of water by 35 gallons, Dina decides that she will also increase her production by 35 gallons. After Dina increases her production, Charles's profit becomes $ Dina's profit becomes $ and total profit (the sum of the profits of Charles and Dina) is now $ Note that Charles and Dina started by behaving cooperatively. However, once Charles decided to cheat, Dina decided to cheat as well. In other words, Dina's output decisions are based on Charles's actions. This behavior is an example of
Transcribed Image Text:After Charles implements his new plan, the price of water to $ per gallon. Given Dina and Charles's production levels, Charles's profit becomes $ and Dina's profit becomes $ Because Charles has deviated from the cartel agreement and increased his output of water by 35 gallons, Dina decides that she will also increase her production by 35 gallons. After Dina increases her production, Charles's profit becomes $ Dina's profit becomes $ and total profit (the sum of the profits of Charles and Dina) is now $ Note that Charles and Dina started by behaving cooperatively. However, once Charles decided to cheat, Dina decided to cheat as well. In other words, Dina's output decisions are based on Charles's actions. This behavior is an example of
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS