wn of a cartel agreement Consider a town in which only two residents, Amrit and Aideen, own wells that produce water safe for drinking. Amrit and Aideen 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 0 Quantity Demanded (Gallons of water) 0 40 80 120 160 200 240 280 320 360 400 440 480 Total Revenue (Dollars) 0 After Amrit implements his new plan, the price of water Amrit's profit becomes $ $132.00 $240.00 $324.00 $384.00 $420.00 $432.00 $420.00 $384.00 $324.00 $240.00 $132.00 0 Suppose Amrit and Aideen form a cartel and behave as a monopolist. The profit-maximizing price is $ is per gallon, and the total output gallons. As part of their cartel agreement, Amrit and Aideen agree to split production equally. Therefore, Amrit's profit is $ and Aideen's profit is $ Suppose that Amrit and Aideen 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, Amrit says to himself, "Aideen and I aren't the best of friends anyway. If I increase my production to 40 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." and Aideen's profit becomes $ to $ per gallon. Given Aideen and Amrit's production levels,
wn of a cartel agreement Consider a town in which only two residents, Amrit and Aideen, own wells that produce water safe for drinking. Amrit and Aideen 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 0 Quantity Demanded (Gallons of water) 0 40 80 120 160 200 240 280 320 360 400 440 480 Total Revenue (Dollars) 0 After Amrit implements his new plan, the price of water Amrit's profit becomes $ $132.00 $240.00 $324.00 $384.00 $420.00 $432.00 $420.00 $384.00 $324.00 $240.00 $132.00 0 Suppose Amrit and Aideen form a cartel and behave as a monopolist. The profit-maximizing price is $ is per gallon, and the total output gallons. As part of their cartel agreement, Amrit and Aideen agree to split production equally. Therefore, Amrit's profit is $ and Aideen's profit is $ Suppose that Amrit and Aideen 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, Amrit says to himself, "Aideen and I aren't the best of friends anyway. If I increase my production to 40 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." and Aideen's profit becomes $ to $ per gallon. Given Aideen and Amrit's production levels,
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Breakdown of a cartel agreement
Consider a town in which only two residents, Amrit and Aideen, own wells that produce water safe for drinking. Amrit and Aideen 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
0
Quantity Demanded
(Gallons of water)
0
40
80
120
160
200
240
280
320
360
400
440
480
Total Revenue
(Dollars)
0
After Amrit implements his new plan, the price of water
Amrit's profit becomes $
$132.00
$240.00
$324.00
$384.00
$420.00
$432.00
$420.00
$384.00
$324.00
$240.00
$132.00
0
Suppose Amrit and Aideen form a cartel and behave as a monopolist. The profit-maximizing price is $
per gallon, and the total output
gallons. As part of their cartel agreement, Amrit and Aideen agree to split production equally. Therefore, Amrit's profit is $
and Aideen's profit is $
is
Suppose that Amrit and Aideen 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, Amrit says to himself, "Aideen and I aren't the best of friends anyway. If I increase my production to
40 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."
and Aideen's profit becomes $
to $
per gallon. Given Aideen and Amrit's production levels,
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