Consider a town in which only two residents, Mike and Leah, own wells that produ

Question

Consider a town in which only two residents, Mike and Leah, own wells that produce water safe for drinking. Mike and Leah can pump and sell as much water as they want at no cost. For them, revenue equals profit. The table below shows the town's demand schedule for water. Price (Dollars) Quantity (Gallons) Total Profit (Dollars) $120 0 $0 $110 10 $1,100 $100 20 $2,000 $90 30 $2,700 $80 40 $3,200 $70 50 $3,500 $60 60 $3,600 $50 70 $3,500 $40 80 $3,200 $30 90 $2,700 $20 100 $2,000 $10 110 $1,100 $0 120 $0 2.5. Because Mike has deviated from the cartel agreement and increased his output of water by 10 gallons more than the cartel amount, Leah decides that she too will increase her production by 10 gallons more than the cartel amount. After Leah increases her production, Mike's profit becomes _______, and Leah's profit becomes _______. A. $1,400; $1,400 B. $1,800; $1,800 C. $1,600; $1,600 D. $2,000; $2,000

Explanation / Answer

B. $1,800; $1,800 You are right. No profits for competitive market. Though funny economy in this town with two residents - they earn nothing, spend nothing and work for free.

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