Cartel:
Profit maximizing price = $ 1.8
Total Output = 210 gallons
Manuel's profit = 105 x 1.8 = $ 189
Poornima's profit = 105 x 1.8 = $ 189
Manuel cheats:
The price of water decreases to $ 1.5 per gallon
Manuel's profit = 140 x 1.5 = $ 210
Poornima's profit = 105 x 1.5 = $ 157.5
Poornima increases production:
New price = $ 1.2 per gallon
Manuel's profit = 140 x 1.2 = $ 168
Poornima's profit = 140 x 1.2 = $ 168
Total Profit = $ 336
The statement is false (output effect > price effect , as total revenue increased)
This outcome is an example of a Nash equilibrium (tit-for-tat strategy)
2. Breakdown of a cartel agreement Consider a town in which only two residents, Manuel and...
3. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette 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 Quantity Demanded (Gallons of water) Total Revenue (Dollars) 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...
6. Breakdown of a cartel agreement Consider a town in which only two residents, Tim and Alyssa, own wells that produce water safe for drinking. Tim and Alyssa 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) 6.00 0 0 5.50 45 248 5.00 90 450 4.50 135...
3. Breakdown of a cartel agreement Consider a town in which only two residents, Brian and Crystal, own wells that produce water safe for drinking, Brian and Crystal 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) 3.00 Quantity Demanded (Gallons of water) Total Revenue (Dollars) 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50...
3. Breakdown of a cartel agreement Consider a town in which only two residents, Felix and Janet, own wells that produce water safe for drinking. Felix and Janet 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) 5.40 Quantity Demanded (Gallons of water) 0 Total Revenue (Dollars) 0 4.95 40 $198.00 4.50 80 4.05 120 3.60...
Do No Harm: 4 6. Breakdown of a cartel agreement Consider a town in which only two residents, Brian and Crystal, own wells that produce water safe for drinking. Brian and Crystal 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. Quantity Demanded (Gallons of water) Total Revenue (Dollars) Price (Dollars per gallon) 6.00 5.50 5.00 4.50 4.00 248 450...
Consider a town in which only two residents, Bob and Cho, own wells that produce water safe for drinking. Bob and Cho 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) 6.00 0 0 5.50 45 $247.50 5.00 90 $450.00 4.50 135 $607.50 4.00 180 $720.00 3.50 225...
Breakdown of a cartel agreement 3. Breakdown of a cartel agreement Aa Aa E Imagine that there is a town in which only two of the residents, Stelios and Sondra, own wells that produce water safe for drinking, and imagine that Stelios and Sondra can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price per Litre ($) Litres Demanded 6....
3. Breakdown of a cartel agreement Conslder a town In which only two resldents, Paolo and Sharon, own wells that produce water safe for drinking. Paolo and Sharon 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)Quantity Demanded (Gallons of water)Total Revenue (Dollars)4.80004.4045$198.004.0090$360.003.60135$486.003.20180$576.002.80225$630.002.40270$648.002.00315$630.001.60360$576.001.20405$486.000.80450$360.000.40495$198.0005400Suppose Paolo and Sharon form a cartel and behave as a monopolist. The profit-maximizing price is...
Consider a town in which only two residents, Jacques and Kyoko, own wells that produce water safe for drinking. Jacques and Kyoko 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 litre) Litres of water) (Dollars,) 4.20 3.85 3.50 3.15 2.80 2.45 2.10 1.75 1.40 1.05 0.70 0.35 40 80 120 160 200...
2. Cournot competition Aa Aa Consider a town in which only two residents, Sam and Amy, own wells that produce water safe for drinking. Sam and Amy can pump and sell as much water as they want at no cost. Assume that outside water cannot be transported into the town for sale. The following questions will walk you through how to compute the Cournot quantity competition outcome for these duopolists. Consider the market demand curve for water and the marginal...