Quantity (in gallons) Total Price Revenue $8 $0 50 7 350 100 600 150 5 750 200 800 250 3 750 300 2 600 350 1 350 400 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk. Their respective dairies are equal in size. Each week Maria and Miguel work together to decide how many gallons of milk to produce and what price to charge. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero and there are no fixed costs. The weekly town demand schedule and total revenue schedule for milk is shown in the table above. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a cartel. Assuming that each producer can only modify quantity in increments of 50, which of the following is consistent with the Nash equilibrium for this scenario? Maria will charge a price of $5 for each gallon. Miguel and Maria will each sell 150 gallons per week. The Nash equilibrium quantity is 200. Milk will sell for $4 per gallon.
Quantity (in gallons) Total Price Revenue $8 $0 50 7 350 100 600 150 5 750 200 800 250 3 750 300 2 600 350 1 350 400 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk. Their respective dairies are equal in size. Each week Maria and Miguel work together to decide how many gallons of milk to produce and what price to charge. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero and there are no fixed costs. The weekly town demand schedule and total revenue schedule for milk is shown in the table above. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a cartel. Assuming that each producer can only modify quantity in increments of 50, which of the following is consistent with the Nash equilibrium for this scenario? Maria will charge a price of $5 for each gallon. Miguel and Maria will each sell 150 gallons per week. The Nash equilibrium quantity is 200. Milk will sell for $4 per gallon.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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