Consider a town in which only two residents, Eric and Ginny, own wells that prod

Question

Consider a town in which only two residents, Eric and Ginny, own wells that produce water safe for drinking. Eric and Ginny 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.

of the profits of Eric and Ginny) is now$ True or False: Based on the fact that both Eric and Ginny increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. O True O False Eric and Ginny have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they both realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider Eric's profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel amount.) Neither Eric nor Ginny has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an example of

Explanation / Answer

Ans)

2.40(Profit is maximum at this price)
total output is 270
Erics profit= 648/2=324
Ginnys profit=324

falls tp $2
Erics profit=2*(135+45)=360
Ginnys profit=2*135=270

Erics profit=1.60*180=288
Ginnys profit=1.60*180=288
Total profit=288*2=576

FALSE

Nash Equilibrium

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