Consider a town in which only two residents Calo and Deborah

Consider a town in which only two residents, Calo and Deborah, own wells that produce water safe for drinking. Carlos and Deborah 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 Price (Dollars per gallon) 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 (Dollars) 45 90 135 180 225 270 315 360 405 450 495 540 $247.50 $450.00 $607.50 $720.00 $787.50 $810.00 $787.50 $720.00 $607.50 $450.00 $247.50 Suppose Carlos and Deborah form a cartel and behave as a monopolist. The profit-maximizing price is S per gallon, and the total output is gallons. As part of their cartel agreement, Carlos and Deborah agree to split production equally. Therefore, Carlos\'s profit is , and Deborah\'s profit is S

Solution

1. Price = $3.00 per gallon (Maximum TR = Maximum Profit)

2. Total output = 270 gallons.

3. Total profit = $810. Therefore Carlos Profit = $405

4. Total profit = $810. Therefore Deborah Profit = $405

Now Carlos produces, (270/2) + 45 = 180 gallons and Deborah produces (270/2) = 135 gallons.

Total Production = 180 + 135 = 315 gallons.

5. Price of water Decreases

6. To $ 2.50 per gallon

7. Carlos Profit = (180 * 2.50) = $450

8. Deborah Profit = (135 * 2.50) = $ 337.5

Now, each produces 180 units. Total production = 360 gallons. Price becomes $2.00

9. Carlos Profit = 180* 2 = $360

10. Deborah Profit = 180* 2 = $360

11. Total Profit = 2 *360 = $720.

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