Table 17-6 Imagine a Small Town in Which Only Two Residents, Kunal

question 362

Multiple Choice

Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
-Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached?

• A)Each will produce 50 gallons, for a total of 100 gallons.
• B)Each will produce 75 gallons, for a total of 150 gallons.
• C)Each will produce 100 gallons, for a total of 200 gallons.
• D)Each will produce 125 gallons, for a total of 250 gallons.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold in the open market.

Long Run

A period in economics where all inputs or factors of production can be varied, with no fixed factors, allowing for full adjustment to changes.

Economic Profit

The divergence between overall financial returns and comprehensive expenses, integrating both apparent and implied costs.

Long Run

In economics, a period in which all factors of production and costs are variable, allowing all inputs to be adjusted.