Econ help O Aplia: Student Question x C Chegg Study I Guided sol x G Consider Li

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Econ help

O Aplia: Student Question x C Chegg Study I Guided sol x G Consider Live Happley Fie X Ci fi Courses aplia.co action takeQuiz&quiz; probGuid Q4PLCOA80101000000307a4920060000&ctx; cnbissess-00388 ck 4 1468428347865 0AAQ E 3. Breakdown of a cartel agreement Consider a town in which only two residents, Charles and wells that produce water safe for drinking. Charles and Dina can pump and sell Dina own 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 35 $115.50 3.30 $210.00 3.00 70 $336.00 2.40 140 175 $367.50 2.10 210 $378.00 1.80 $367.50 245 $336.00 1.20 280 0.90 $210.00 0.60 350 0.30 385 $115.50 420 Suggestions per gallon, and the total Suppose Charles and Dina form a cartel and behave as a monopolist. The profit maximizing price is Session 59:36 Timeout 12:46 PM m Cortana. Ask me anything

Explanation / Answer

Profit maximizing price is $1.8 per gallon ( it is the price when revenue of $378 is maximum)

Total output is 210 gallon of water ( at the price of $1.8, demand of water is 210 gallon)

Charles’s profit is $189 and Dina’s profit is $189 ( Revenue = Profit and it is equally shared)

Total output of water = Charles’s new output + Dina’s output = (105+35) + 105 = 245 Gallon

Now,

Price of water is $1.5 per gallon

Charles’s profit = 140*1.5 = $210

Dina’s profit = 105*1.5 = $ 157.5

After Dina also increases the production by 35 gallon.

Now,

Charles’s profit = 140*1.2 = $168

Dina’s profit = 140*1.2 = $168

Total profit =168+168 = $336

Correct Answer:

False

Explanation:

It is the price effect that causes reduction in price due to increase in production. It leads to reduction in revenue and it is the case when Charles and Dina increase the production.

Efficient output or profit maximizing output

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