Table 17-1
Imagine a small town in which only two residents, Matthew and Anna, own wells that produce water for safe drinking. Each Saturday, Matthew and Anna work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Matthew and Anna can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is reflected in the table.

-Refer to Table 17-1.Suppose the town enacts new competition laws that prohibit Matthew and Anna from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached
A)$3
B)$4
C)$5
D)$6

Question

Table 17-1
Imagine a small town in which only two residents, Matthew and Anna, own wells that produce water for safe drinking. Each Saturday, Matthew and Anna work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Matthew and Anna can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is reflected in the table.

-Refer to Table 17-1.Suppose the town enacts new competition laws that prohibit Matthew and Anna from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached
A)$3 
B)$4 
C)$5 
D)$6

Quizplus · Accepted Answer

The Nash equilibrium is the point where neither Matthew nor Anna can improve their profit by changing their price. In this case, the Nash equilibrium is at a price of $4, where both Matthew and Anna are making a profit of $2.

Table 17-1 Imagine a Small Town in Which Only Two Residents, Matthew