courses-Blackboard Learn Econ201-Fall20 17-PS3.f × e chegg study! Guided solut e
ID: 1120099 • Letter: C
Question
courses-Blackboard Learn Econ201-Fall20 17-PS3.f × e chegg study! Guided solut e0CFB PLAYOFF RANKI O Kansas vs Syracuse! NCAA I + (- Ball State University us blackboard bs.edubbcs ebdav pid-636946-t-content-rid-419879761/courses/201 7FAL ECON201S08 CLAS 14902 ME To see favorites here, select then and drag to the Favorites Bar folder. Or import from another browser. Import favorites Find on page Enter text to search No results Options Question 4: Oligopoly (10 points total) Refer to the following scenario and the table below to answer questions a through Imagine a small town in which only two residents, Randy and Alex, own wells that produce safe drinking water. Each week Randy and Alex work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Randy and Alex 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 is shown in the table below: Quantity in gallons Total Revenue and Total Profit S60 100 50 45 10,000 13.500 16,000 35 30 18,000 15 10 16,000 13 10,000 1,000 1,200 2:38 AM O Type here to search d ^ 41) ENG 12/5/2017Explanation / Answer
(a)
A profit-maximizing monopolist in this market for water will produce that level of output at which total revenue is at its maximum.
Total revenue (or total profit in this case) is maximum corresponding to production of 600 gallons of water at the price of $30 per gallon.
So,
If Randy and Alex operate as profit-maximizing monopoly in the market for water -
(i) The price they will charge = $30 per gallon
(ii) The gallons of water produced and sold = 600 gallons
(iii) Profit each of them will earn = $9,000
(b)
If market for water is perfectly competitive then quantity produced would be such corresponding to which price equals marginal cost.
Marginal cost is $0.
So, the quantity corresponding to which price is also $0 would be the quantity produced in perfectly competitive market. This quantity is 1,200 gallons.
Thus, if market is perfectly competitive instead of monopolistic
(i) The price they will charge = $0 per gallon
(ii) The gallons of water produced and sold = 1,200 gallons
(iii) Profit each of them will earn = $0
(c)
The socially efficient quantity of water is 1,200 gallons.
(d)
If Randy choose to produce 300 gallons of water then Alex will choose to produce 400 gallons of water as profit for Alex is higher in that case.
If Randy choose to produce 400 gallons of water then Alex will also choose to produce 400 gallons of water as profit for Alex is higher in that case.
Thus, producing 400 gallons of water is a dominant strategy for Alex.
If Alex choose to produce 300 gallons of water then Randy will choose to produce 400 gallons of water as profit for Randy is higher in that case.
If Alex choose to produce 400 gallons of water then Randy will also choose to produce 400 gallons of water as profit for Randy is higher in that case.
Thus, producing 400 gallons of water is a dominant strategy for Randy.
The combination of dominant strategies of both players is the Nash equilibrium.
So, the nash equilibrium of this game is (producing 400 gallons, producing 400 gallons).
(i) The total gallons of water that will be produced and sold once Randy and Alex reach a Nash equilibrium is 800 gallons of water.
(ii) The price of water once the Randy and Alex reach a nash equilibrium will be $20 per gallon.
(iii) Each of them will earn a profit of $8,000.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.