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:

Novation

A legal process by which an existing contract is replaced by a new contract, with the consent of all parties involved, often involving a change of parties or terms.

Statutory Assignment

The transfer of rights or interests in a particular matter as established by statute or legislative action.

Equitable Assignment

A method by which contractual rights are transferred from one party to another, in a manner recognized by equity or fairness, rather than strictly by the letter of the law.

Rectification

The judicial procedure for rectifying an error in a document to accurately represent the real intentions of the parties concerned.