Table 16-7
Suppose the countries of Xania and Pluntia share the world supply of water. Suppose that the marginal cost of bottling water is a constant $4 per gallon, and the demand for water is described by the following schedule:

-Refer to Table 16-7.Suppose Xania and Pluntia form a cartel and decide to split the market evenly.What level of production should Pluntia choose to maximize profit assuming Xania will stick to the agreement?
A)50
B)150
C)250
D)350

Question

Table 16-7
Suppose the countries of Xania and Pluntia share the world supply of water. Suppose that the marginal cost of bottling water is a constant $4 per gallon, and the demand for water is described by the following schedule:
 
-Refer to Table 16-7.Suppose Xania and Pluntia form a cartel and decide to split the market evenly.What level of production should Pluntia choose to maximize profit assuming Xania will stick to the agreement?
A)50 
B)150 
C)250 
D)350

Quizplus · Accepted Answer

In a cartel, firms agree to limit production to maximize joint profits. If Xania and Pluntia split the market evenly, they should each produce half of the total quantity that maximizes joint profits. Assuming the total profit-maximizing quantity is 500, Pluntia should produce 250.

Table 16-7 Suppose the Countries of Xania and Pluntia Share the World