Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.

-Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist.Once the Nash equilibrium is reached,how much profit will each producer earn?
A) $400.00
B) $437.50
C) $450.00
D) $800.00

Question

Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
 
-Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist.Once the Nash equilibrium is reached,how much profit will each producer earn?
A) $400.00 
B) $437.50 
C) $450.00 
D) $800.00

Quizplus · Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategy chosen by the other firm. In this scenario, both firms will produce at a level where they cannot increase profit by changing their output, resulting in each earning $400.00.