Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe
Question:
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and total revenue schedule for water is shown in the table below:
Quantity | Price | Total Revenue |
0 | $60 | $0 |
100 | 55 | 5,500 |
200 | 50 | 10,000 |
300 | 45 | 13,500 |
400 | 40 | 16,000 |
500 | 35 | 17,500 |
600 | 30 | 18,000 |
700 | 25 | 17,500 |
800 | 20 | 16,000 |
900 | 15 | 13,500 |
1,000 | 10 | 10,000 |
1,100 | 5 | 5,500 |
1,200 | 0 | 0 |
If Rochelle and Alec operated as a profit-maximizing monopoly firm, they would produce _____ gallons. They would each earn a profit of $ _______ assuming they split it equally. If the market were perfectly competitive, they would produce ______ gallons. If Alec and Rochelle are no longer cooperate to operate as a monopoly, their Nash Equilibrium price is $______ and quantity of water is ______ gallons.