3. Breakdown of a cartel agreementConsider a town in which only two residents, Van and Amy, own wells that produce water safe for drinking. Van and Amy can pump and sell as muchwater as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.PriceQuantity Demanded Total Revenue(Dollars per gallon)(Gallons of water)(Dollars)6.005.5045$247.505.0090$450.004.50135$607.504.00180$720.003.50225$787.503.00270$810.002.50315$787.502.00360$720.001.50405$607.501.00450$450.000.50495$247.50540Suppose Van and Amy form a cartel and behave as a monopolist. The profit-maximizing price is Sper gallon, and the total output isgallons. As part of their cartel agreement, Van and Amy agree to split production equally. Therefore, Van's profit is sandAmy's profit is $Suppose that Van and Amy 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, Van says to himself, "Amy and I aren't the best of friends anyway. If I increase my production to 45 gallonsmore than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Van implements his new plan, the price of waterv to $per gallon. Given Amy and Van's production levels, Van'sprofit becomes Sand Amy's profit becomes s Because Van has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Amy decides thatshe will also increase her production to 45 gallons more than the cartel amount.After Amy increases her production, Van's profit becomes $, Amy's profit becomes $|, and total profit (the sum ofthe profits of Van and Amy) is now $True or False: Based on the fact that both Van and Amy increased production from the initial cartel quantity, you know that the output effect waslarger than the price effect at that quantity.O TrueO FalseVan and Amy have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they bothrealize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider Van'sprofit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel amount.)Neither Van nor Amy has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an example of

1 Blank - 3.00 2 Blank - 270 3 Blank - 405 (810/2) 4 Blank - 405 (810/2) 5 Blank - decreases 6 Blank…

Answered: ter Amy increases her production, Van's…

ter Amy increases her production, Van's profit becomes S e profits of Van and Amy) is now s Amy's profit becomes s and total pro

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 7PA

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6. 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. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 6.00 5.50 45 248 5.00 90 450 4.50 135 608 4.00 180 720 3.50 225 788 3.00 270 810 2.50 315 788 2.00 360 720 1.50 405 608 1.00 450 450 0.50 495 248 540
3. Breakdown of a cartel agreement Consider a town in which only two residents, Jake and Latasha, own wells that produce water safe for drinking. Jake and Latasha 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) 5.40 0 0 4.95 40 $198.00 4.50 80 $360.00 4.05 120 $486.00 3.60 160 $576.00 3.15 200 $630.00 2.70 240 $648.00 2.25 280 $630.00 1.80 320 $576.00 1.35 360 $486.00 0.90 400 $360.00 0.45 440 $198.00 0 480 0 Suppose Jake and Latasha 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, Jake and Latasha agree to split production equally. Therefore, Jake's profit is , and Latasha's profit is . Suppose that Jake and…
3. Breakdown of a cartel agreement Consider a town in which only two residents, Daniel and Gabrielle, own wells that produce water safe for drinking. Daniel and Gabrielle 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 Total Revenue (Gallons of water) (Dollars) 4.20 0 0 3.85 40 $154.00 3.50 80 $280.00 3.15 120 $378.00 2.80 160 $448.00 2.45 200 $490.00 2.10 240 $504.00 1.75 280 $490.00 1.40 320 $448.00 1.05 360 $378.00 0.70 400 $280.00 0.35 440 $154.00 0 480 0 Suppose Daniel and Gabrielle form a cartel and behave as a monopolist. The profit-maximizing price is $ output is per gallon, and the total gallons. As part of their cartel agreement, Daniel and Gabrielle agree to split production equally. Therefore, Daniel's profit is and Gabrielle's profit is $
3. Breakdown of a cartel agreement Consider a town in which only two residents, Musashi and Rina, own wells that produce water safe for drinking. Musashi and Rina 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 Musashi and Rina 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, Musashi and Rina agree to split production equally. Therefore, Musashi's profit is %2$ , and Rina's profit is $
7. Breakdown of a cartel agreement Consider a town in which only two residents, Clancy and Eileen, own wells that produce water safe for drinking. Clancy and Eileen 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 $787.50 3.00 270 $810.00 2.50 315 $787.50 2.00 360 $720.00 1.50 405 $607.50 1.00 450 $450.00 0.50 495 $247.50 0 540 0 Suppose Clancy and Eileen 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, Clancy and Eileen agree to split production equally. Therefore, Clancy's profit is $ and Eileen's profit is $ Suppose that Clancy and Eileen have been successfully operating as a cartel. They each charge…
3. Breakdown of a cartel agreement Consider a town in which only two residents, Carlos and Deborah, own wells that produce water safe for drinking. Carlos and Deborah 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 per gallon, and the total Suppose Carlos and Deborah form a cartel and behave as a monopolist. The profit-maximizing price is $ output is gallons. As part of their cartel agreement, Carlos and Deborah agree to split production equally. Therefore, Carlos's profit is 24 and Deborah's profit is $ orice and sell half of the monopoly Suppose that Carlos and Deborah have been successfully…
6. The cartel Consider a town in which only two residents, Rajiv and Simone, own wells that produce water safe for drinking. Rajiv and Simone 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) 6.00 Quantity Demanded Total Revenue (Gallons of water) (Dollars) 0 0 5.50 45 247.50 5.00 90 450.00 4.50 135 607.50 4.00 180 720.00 3.50 225 787.50 3.00 270 810.00 2.50 315 787.50 2.00 360 720.00 1.50 405 607.50 1.00 450 450.00 0.50 495 247.50 0 540 0 Suppose Rajiv and Simone 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, Rajiv and Simone agree to split production equally. Therefore, Rajiv's profit is $ and Simone's profit is $ Suppose that Rajiv and Simone have been successfully operating as a cartel. They each charge the monopoly price and sell half of…
Quantity (in gallons) Total Price Revenue $8 $0 50 7 350 100 600 150 750 200 4 800 250 3 750 300 600 350 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 will sell 100 gallons. Milk will…
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. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 5.40 0 0 4.95 40 $198.00 4.50 80 $360.00 4.05 120 $486.00 3.60 160 $576.00 3.15 200 $630.00 2.70 240 $648.00 2.25 280 $630.00 1.80 320 $576.00 1.35 360 $486.00 0.90 400 $360.00 0.45 440 $198.00 0 480 0 Suppose Sean and Yvette 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, Sean and Yvette agree to split production equally. Therefore, Sean's profit is $ __________ , and Yvette's profit is __________ .…
4. An amusement park has 1 000 visitors every Saturday and charges $55 per person to enter the park. Research shows that for every $1 decrease in price, 25 more people will come to the park, and for every $1 increase in price, 25 fewer people will come to the park. The park has a maximum capacity of 1 600 people, and they must have more than 800 visitors to break even. What price should they charge to maximise their revenue, to the nearest dollar?
3. The cartel of copper exporting countries is called COPEC. As part of an international trade agreement, the United States has agreed to buy all the copper that COPEC wants to sell to the United States at a constant price of $100 per tonne. COPEC also sells copper in Europe at a price of $150 per tonne. COPEC acts just like a monopolist; if it finds it is profit maximising to sell in the United States at $100 per tonne and simultaneously to sell in Europe for $150 a tonne, what is the price elasticity of demand of COPEC's copper in the European market? Carefully explain all the steps in the derivation of the value of the elasticity including the underlying economic theory approach behind it.
4. Oligopolies and Cartels A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is constant at $2,000 per diamond, and the demand for diamonds is described by the following schedule: Price Quantity (Dollars) (Diamonds) 8,000 2,000 7,000 3,000 6,000 4,000 5,000 5,000 4,000 6,000 3,000 7,000 2,000 8,000 1,000 9,000 If there were many suppliers of diamonds, the price would be $ per diamond and the quantity sold would be diamonds. If there were only one supplier of diamonds, the price would be $ per diamond and the quantity sold would be diamonds. Suppose Russia and South Africa form a cartel. In this case, the price would be $ per diamond and the total quantity sold would be diamonds. If the countries split the market evenly, South Africa would produce diamonds and earn a profit of $ If South Africa increased its production by 1,000 diamonds while Russia stuck to the cartel agreement, South Africa's profit…