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In: Economics
3. Breakdown of a cartel agreement Consider a town in which only two residents, Yakov and...
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3. Breakdown of a cartel agreement Consider a town in which only two residents, Yakov and Ana, own wells that produce water safe for drinking. Yakov and Ana 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.
Suppose that Yakov and Ana 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, Yakov says to himself, "Ana and I aren't the best of friends anyway. If I increase my production to 40 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Yakov implements his new plan, the price of water (increases/decreases) to ____ per gallon. Given Ana and Yakov's production levels, Yakov's profit becomes _____ and Ana's profit becomes _____.Because Yakov has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Ana decides that she will also increase her production to 40 gallons more than the cartel amount. After Ana increases her production, Yakov's profit becomes _____, Ana's profit becomes ____, and total profit (the sum of the profits of Yakov and Ana) is now ________.True or False: Based on the fact that both Yakov and Ana increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. -True -False Note that Yakov and Ana started by behaving cooperatively. However, once Yakov decided to cheat, Ana decided to cheat as well. In other words, Ana's output decisions are based on Yakov's actions. This behavior is an example of (a prisoner's dilemma, tying, a dominant strategy, a tit-for-tat strategy . |
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
3. Breakdown of a cartel agreement Consider a town in which only two residents, Sam and...
3. Breakdown of a cartel agreement Consider a town in which only
two residents, Sam and Teresa, own wells that produce water safe
for drinking. Sam and Teresa 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) 3.00 0 0 2.75 50 $137.50 2.50 100 $250.00 2.25 150...
3. Breakdown of a cartel agreement Consider a town in which only two residents, Sam and...
3. Breakdown of a cartel agreement
Consider a town in which only two residents, Sam and Teresa, own
wells that produce water safe for drinking. Sam and Teresa 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)
3.00
0
0
2.75
50
$137.50
2.50
100
$250.00
2.25
150...
3. Breakdown of a cartel agreement Consider a town in which only two residents, Clancy and...
3. 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) 3.60 0 0 3.30 30 $99.00 3.00 60 $180.00 2.70 90...
Breakdown of a cartel agreement Consider a town in which only two residents, Sam and Teresa,...
Breakdown of a cartel agreement
Consider a town in which only two residents, Sam and Teresa, own
wells that produce water safe for drinking. Sam and Teresa 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)
4.20
0
0
3.85
40
$154.00
3.50
80
$280.00
3.15
120
$378.00...
The cartel Consider a town in which only two residents, Hubert and Kate, own wells that...
The cartel
Consider a town in which only two residents, Hubert and Kate,
own wells that produce water safe for drinking. Hubert and Kate 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)
4.20
0
0
3.85
40
154.00
3.50
80
280.00
3.15
120
378.00
2.80
160
448.00...
SENTENCES IN BOLD ARE THE QUESTIONS Consider a town in which only two residents, Felix and...
SENTENCES IN BOLD ARE THE QUESTIONS
Consider a town in which only two residents, Felix and Janet,
own wells that produce water safe for drinking. Felix and Janet 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
0
0
3.30
35
$115.50
3.00
70
$210.00
2.70
105...
Consider a town in which only two residents, Dmitri and Frances, own wells that produce water...
Consider a town in which only two residents, Dmitri and Frances, own wells that produce water safe for drinking. Dmitri and Frances 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...
Consider a town in which only two residents, Raphael and Susan, own wells that produce water...
Consider a town in which only two residents, Raphael and Susan,
own wells that produce water safe for drinking. Raphael and Susan
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
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...
Consider a town in which only two residents, Kenji and Lucia, own wells that produce water...
Consider a town in which only two residents, Kenji and Lucia,
own wells that produce water safe for drinking. Kenji and Lucia 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)
4.20
0
0
3.85
30
$115.50
3.50
60
$210.00
3.15
90
$283.50
2.80
120
$336.00
2.45
150...
1) Table 17-30 Imagine a small town in which only two residents, Abby and Brad, own...
1) Table 17-30 Imagine a small town in which only two residents,
Abby and Brad, own wells that produce safe drinking water. Each
week Abby and Brad work together to decide how many gallons of
water to pump. They bring water to town and sell it at whatever
price the market will bear. To keep things simple, suppose that
Abby and Brad can pump as much water as they want without cost so
that the marginal cost is zero. The...
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