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

question 347

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 the new price of water be once the Nash equilibrium is reached?

• A)$3
• B)$4
• C)$5
• D)$6

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Definitions:

Sales Commissions

A portion of the selling price that is paid to sales employees as a reward for making sales or reaching targets.

Sales Volume

The total quantity of goods or services sold in a particular time period.

Fixed Cost

Expenses that remain unchanged regardless of the level of production or sales activity within a certain range and period.

Variable Cost

Expenditures that adjust in relation to the volume of production or operational activities.