Table 17-10
Imagine a Small Town in Which Only Two

question 196

Essay

Table 17-10
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:
$\begin{array}{|l|l|l|}\hline \begin{array}{l}\text { Quantity } \\\text { (in gallons) }\end{array} & \text { Price } & \begin{array}{l}\text { Total Revenue } \\\text { (and Total Profit) }\end{array} \\\hline 0 & \$ 12 & \$ 0 \\\hline 1 & \$ 11 & \$ 11 \\\hline 2 & \$ 10 & \$ 20 \\\hline 3 & \$ 9 & \$ 27 \\\hline 4 & \$ 8 & \$ 32 \\\hline 5 & \$ 7 & \$ 35 \\\hline 6 & \$ 6 & \$ 36 \\\hline 7 & \$ 5 & \$ 35 \\\hline 8 & \$ 4 & \$ 32 \\\hline 9 & \$ 3 & \$ 27 \\\hline 10 & \$ 2 & \$ 20 \\\hline 11 & \$ 1 & \$ 11 \\\hline 12 & \$ 0 & \$ 0 \\\hline\end{array}$

-Refer to Table 17-10. 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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