Question

3. Consider a market for bottled water served by only two firms, Aquapura and Mountain Spring. Each firm can draw water free of charge from a mineral spring located on its own land. Customers supply their own bottles, and the firms have zero marginal costs and zero fixed costs. Rather than compete with one another, the two firms decide to collude by selling water at the price a profit-maximizing pure monopolist would charge. Under their agreement, each firm would produce and sell half the quantity of water demanded by the market at the monopoly price. Since the agreement is not legally enforceable, each firm actually has the option of charging less than the agreed price. If one firm sells water for less than the other firm, it will capture the entire quantity demanded by the market at the lower price. a. (8 points) Draw a typical linear demand and marginal revenue curve for a single-price monopolist, as well as the marginal cost. Show the equilibrium price and quantity if Aquapura and Mountain Spring abide by the agreement. Indicate the profits that each one of the firms will be earning.

Answer 1

Page No. focufit of Firm Aques pool by الطامعه Total profit profit tamen mountain (hattt st o Dem MR