Question

Suppose Hubert and Kate form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output is gallons. As part of their cartel agreement, Hubert and Kate agree to split production equally. Therefore, Hubert's profit is $ , and Kate's profit is $ .

Answer 1

Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate can pump and sell as much water as they want at no cost. For them, total revenue equals profit.

The following table shows the town's demand schedule for water,

Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) $247.50 $450.00 $607.50 4.00 180 $720.00 $787.50 3.00 270 $810.00 $787.50 2.00 $720.00 $607.50 $450.00 $247.50 (Look at attached image for clearer image)

Answer:

$3, $810

Explanation:

By carefully examining the table above we can infer that Hubert and Kate's profit is maximised at $3 unit price.

The total output at this point is 270 with a total Revenue of $810, implying that they will share the amount equally 810/2= $405 for Kate and $405 for Hubert.