Table 17-10
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.

-Refer to Table 17-10.If there are exactly five sellers of gasoline in Driveaway and if they collude,then which of the following outcomes is most likely?
A) Each seller will sell 50 gallons and charge a price of $3.
B) Each seller will sell 40 gallons and charge a price of $4.
C) Each seller will sell 30 gallons and charge a price of $4.
D) Each seller will sell 30 gallons and charge a price of $5.

Question

Table 17-10
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.
 
-Refer to Table 17-10.If there are exactly five sellers of gasoline in Driveaway and if they collude,then which of the following outcomes is most likely?
A) Each seller will sell 50 gallons and charge a price of $3. 
B) Each seller will sell 40 gallons and charge a price of $4. 
C) Each seller will sell 30 gallons and charge a price of $4. 
D) Each seller will sell 30 gallons and charge a price of $5.

Quizplus · Accepted Answer

To maximize joint profit, the sellers will want to sell less gasoline than the competitive market equilibrium quantity of 150 gallons, in order to increase the price above the competitive price of $3 per gallon. They will also want to divide the 150 gallons of sales among themselves equally to avoid price competition. Since there are five sellers, each will sell 30 gallons of gasoline. The cost per gallon is $2, so each seller will charge a price of $5 to make a profit of $3 per gallon sold ($5 - $2 =$3). Therefore, choice D is the most likely outcome.

Table 17-10 the Table Shows the Town of Driveaway's Demand Schedule for Schedule