Table 17-36 The information in the table shows the total demand for water servic
ID: 1152037 • Letter: T
Question
Table 17-36 The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract. Quantity Price 60 0 100 200 300 45 40 35 500 800 900 1000 1100 1200 25 20 15 10 0 Refer to Table 17-36. Assume there are two profit-maximizing water service providers in this market who had formed a successful cartel. Now assume that the cartel breaks down, so that they are not able to collude on the price and quantity of service contracts to sell. How much profit will each firm earn when this market reaches a Nash equilibrium? $6500 $8800. $6800. o $8000.Explanation / Answer
Option 1
q
P
TR
FC
VC
TC
Profit
Profit per firm
0
60
0
800
0
800
-800
-400
100
55
5500
800
200
1000
4500
2250
200
50
10000
800
400
1200
8800
4400
300
45
13500
800
600
1400
12100
6050
400
40
16000
800
800
1600
14400
7200
500
35
17500
800
1000
1800
15700
7850
600
30
18000
800
1200
2000
16000
8000
700
25
17500
800
1400
2200
15300
7650
800
20
16000
800
1600
2400
13600
6800
900
15
13500
800
1800
2600
10900
5450
1000
10
10000
800
2000
2800
7200
3600
1100
5
5500
800
2200
3000
2500
1250
1200
0
0
800
2400
3200
-3200
-1600
When the firms are able to establish cartel, each would sell at price of $30, which is the profit maximising price. As they are not able to establish cartel each would sell at price lesser at $25, earning net profit of 6500
q
P
TR
FC
VC
TC
Profit
Profit per firm
600
25
15000
800
1200
2000
13000
6500
q
P
TR
FC
VC
TC
Profit
Profit per firm
0
60
0
800
0
800
-800
-400
100
55
5500
800
200
1000
4500
2250
200
50
10000
800
400
1200
8800
4400
300
45
13500
800
600
1400
12100
6050
400
40
16000
800
800
1600
14400
7200
500
35
17500
800
1000
1800
15700
7850
600
30
18000
800
1200
2000
16000
8000
700
25
17500
800
1400
2200
15300
7650
800
20
16000
800
1600
2400
13600
6800
900
15
13500
800
1800
2600
10900
5450
1000
10
10000
800
2000
2800
7200
3600
1100
5
5500
800
2200
3000
2500
1250
1200
0
0
800
2400
3200
-3200
-1600
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