Question

Scenario

Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:

Quantity (in gallons)	Price	Total Revenue (and Total Profit)
0	$12	$0
1	$11	$11
2	$10	$20
3	$9	$27
4	$8	$32
5	$7	$35
6	$6	$36
7	$5	$35
8	$4	$32
9	$3	$27
10	$2	$20
11	$1	$11
12	$0	$0

1. Refer to the figure above Suppose that Abby and Brad work together to operate as a profit maximizing monopolist. What price will they charge for water?

     a. $8

2. $7
3. $6
4. $4

2. Refer to the figure above. If this market for water were perfectly competitive instead of monopolistic, what would be the price for water?

     a. $0

5. $4
6. $6
7. $12

Scenario

Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2).

                                                                                                            Store 2

                                                                                         Low Price                      High Price

(250, 250)	(400, 50)
(50, 400)	(325, 325)

Low Price

Store 1

High Price

3. Refer to the figure above. If grocery store 2 sets a low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

    a. Low price, $250

3. 2. High price, $400
   3. Low price, $50
   4. High price, $50
4. Refer to the figure above. If grocery store 2 sets a high price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

    a. Low price, $400

4. 5. High price, $325
   6. Low price, $50
   7. High price, $400
5. Refer to the figure above. What is the Nash Equilibrium of this price-setting game?
   1. Grocery store 1: Low price Grocery store 2: Low price
   2. Grocery store 1: Low price Grocery store 2: High price
   3. Grocery store 1: High price Grocery store 2: How price
   4. Grocery store 1: High price Grocery store 2: High price

Answer 1

1) a) When they act as a monopolist they will produce where the revenue is maximized

so, P=6

Option(C)

b) When the market is perfectly competitive, it will set P=MC so, P=MC=0

Option(A)

As per Chegg guidelines, the first question is answered