The following table shows your neighorhood\'s demand for drinking water. Assume

Question

The following table shows your neighorhood's demand for drinking water. Assume that only two firms (Waterland and Aquataste) produce and sell water in this market. Each firm offers the same quality, no fixed costs are incurred in the production of water, and each firm's marginal cost is constant and equal to $0 because both companies can pump as much water as needed without cost. Because marginal cost is constant and equal to $0, total revenue is equal to total profit. 700 Price (per gallon) Quantity (gallons) Total Revenue (TR) $0.25 1000 $250.00 |$0.50 1900 $450.00 $0.75 800 $600.00 $1.00 $700.00 $1.25 |600 $750.00 $1.50 500 $750.00 $1.75 400 $700.00 $2.00 |300 $600.00 $2.25 200 $450.00 $2.50 |100 $250.00 $2.75 $0.00 Assume Waterland and Aquataste make a nonbinding, informal agreement that each will produce 250 gallons of water, charge $1.50 per gallon, and evenly split the profit of $750.

Explanation / Answer

1)

Total production = 600 gallons , price = $1.25

Waterland's profit = 350 x 1.25 = $437.5

2)

Total production = 700 gallons, price = $1

Waterland's profit = 350 x 1 = $350

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