Table 17-6
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 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached?
A)Each will produce 50 gallons, for a total of 100 gallons.
B)Each will produce 75 gallons, for a total of 150 gallons.
C)Each will produce 100 gallons, for a total of 200 gallons.
D)Each will produce 125 gallons, for a total of 250 gallons.

Question

Table 17-6
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 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached?
A)Each will produce 50 gallons, for a total of 100 gallons. 
B)Each will produce 75 gallons, for a total of 150 gallons. 
C)Each will produce 100 gallons, for a total of 200 gallons. 
D)Each will produce 125 gallons, for a total of 250 gallons.

Quizplus · Accepted Answer

Once the town enacts new antitrust laws, Kunal and Naj cannot operate as a monopolist and must produce the quantity that maximizes their joint profit. To find the Nash equilibrium, we need to find the point at which the two firms' reaction curves intersect. In this case, the reaction curves for both Kunal and Naj are identical and go through the midpoint of the demand curve (75 gallons at a price of $2.50 per gallon). Therefore, the Nash equilibrium quantity for each firm is 100 gallons, for a total of 200 gallons.

Table 17-6 Imagine a Small Town in Which Only Two Residents, Kunal