6. Breakdown of a cartel agreement Consider a town in which only two residents,

Question

6. Breakdown of a cartel agreement Consider a town in which only two residents, Felix and Janet, own wells that produce water safe for drinking. Felix and Janet can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Quantity Demanded (Gallons of water) Total Revenue (Dollars) Price (Dollars per gallon) 3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 1.20 0.90 0.60 0.30 0 35 70 105 140 175 210 245 280 315 350 385 420 116 210 284 336 368 378 368 336 284 210 116 Suppose Fellx and Janet form a cartel and behave as a monopolist. The profit-maximizing price is S per gallon, and the total output gallons. As part of their cartel agreement, Felix and Janet agree to split production equally. Therefore, Felix's profit is

Explanation / Answer

suppose Felix and Janet form a cartel and behave as a monopolist, the profit-maximizing price is:-

The profit-maximizing price is when they earn the maximum revenue which is $378 for a price of $1.8/gallon

So the correct Answer is:- $1.8/gallon

And the total output is:- 210 gallon of water

Answer:- Felix’s profit =$378/2 =$189

Janet’s profit =$378/2=$189

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