### Understanding the Town's Water Demand ScheduleConsider a town in which only two residents, Van and Amy, own wells that produce drinking water. Van and Amy can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The table below illustrates the town’s demand schedule for water.#### Demand Schedule for Water| Price (Dollars per gallon) | Quantity Demanded (Gallons of water) | Total Revenue (Dollars) ||----------------------------|-------------------------------------|--------------------------|| 3.60 | 0 | 0 || 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 || 0.00 | 420 | 0 |#### Explanation of the Table- **Price (Dollars per gallon)**: This column shows the different prices at which water could be sold per gallon.- **Quantity Demanded (Gallons of water)**: This column indicates the corresponding quantity of water that the town's residents are willing to purchase at each price point.- **Total Revenue (Dollars)**: This is calculated by multiplying the price per gallon by the quantity demanded. It represents the total earnings from the sale of water at each price level.**Key Observations**:- At higher prices, such as $3.60 per gallon, the quantity demanded drops to zero, reflecting no willingness to purchase.- As the price decreases, the quantity demanded increases, peaking at 420 gallons when the price is zero.- Total revenue is highest at a price of $1.80 per gallon, ### Cartel Behavior and Market Dynamics**Scenario:**Van and Amy form a cartel and behave as monopolists. They agree to split production equally at a profit-maximizing price of **$1.80** per gallon, with a total output of **210** gallons. As part of this agreement, both Van's and Amy's profit is **$189.00**.**Plan Deviation:**- Van decides to increase his production to 35 gallons more than the cartel amount.- This causes the price of water to **decrease** to **$1.50** per gallon.- Van's profit becomes **$105**, and Amy's profit becomes **$105**.**Amy's Response:**- Amy reacts by also increasing her production by 35 gallons more than the cartel amount.- As a result, Van's new profit is **$121.50**, Amy's new profit is **$121.50**, and the total profit is now **$243.00**.**True or False Statement:**- Based on both Van and Amy increasing production from the initial cartel quantity, the statement reads that the output effect was smaller than the price effect at that quantity. - **Answer:** True**Behavior Analysis:**- Initially, Van and Amy were cooperative, but Van's decision to cheat led to Amy cheating as well.- This behavior exemplifies a situation of **competitive cheating or betrayal in a cartel agreement**.

Monopoly refers to the form of market in which there is one single seller, and they selling the…

Consider 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 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 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 DOE Total Revenue (Dollars) 0 $115.50 $210.00 $283.50 $336.00 $367.50 $378.00 $367.50 $336.00 $283.50 $210.00 2115 FA

Consider 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 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 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 DOE Total Revenue (Dollars) 0 $115.50 $210.00 $283.50 $336.00 $367.50 $378.00 $367.50 $336.00 $283.50 $210.00 2115 FA

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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