Table 17-30 Imagine a Small Town in Which Only Two Residents, Abby

question 486

Essay

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 weekly town demand schedule and total revenue schedule for water is shown in the table below:
-Refer to Table 17-30. Briefly explain why each duopolist earns a lower profit at the Nash equilibrium than if they cooperated to produce the monopoly output.

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Definitions:

Variable Expenses

Variable expenses are costs that change in proportion with the level of activity or production volume, such as materials and labor costs.

Transfer Price

The price at which goods and services are sold between divisions within the same company, influencing the financial performance of each division.

Variable Cost

Costs that change in proportion to the level of goods or services that a business produces.

Additional Parts

Components or pieces beyond the basic requirements that are included in the manufacturing or assembly of a product.