Question 1

Suppose Jack and Jill are the only two owners of wells in a small town, and they face zero production costs. The demand for water is linear. If both Jack and Jill produce 40 gallons each, what is the total quantity supplied to the market?

Accepted Answer

80 gallons

Question 2

Given the market price equation $$P = 120 - Q$$, where $$Q is $$the total quantity of water supplied, what is the market price if Jack produces 30 gallons and Jill produces 30 gallons?

Accepted Answer

$$P = 120 - 60 = 60$$

Question 3

If Jack produces 40 gallons and Jill produces 30 gallons, what is Jack's profit given the price equation $$P = 120 - Q$$ and zero production cost?

Accepted Answer

$$	ext{Profit} = 40 	imes (120 - 70) = 40 	imes 50 = 2000$$

Question 4

In the context of the water market described, what type of market structure do Jack and Jill represent?

Accepted Answer

Oligopoly (Duopoly)

Question 5

If both Jack and Jill decide to produce 30 gallons each, what is the total profit for both, given $$P = 120 - Q$$ and zero cost?

Accepted Answer

$$	ext{Total Profit} = 60 	imes 60 = 3600$$

Question 6

Which of the following best describes the strategic interaction between Jack and Jill in deciding how much water to produce?

Accepted Answer

Each must consider the other's output when making their own decision.

Question 7

If Jack increases his output from 30 to 40 gallons while Jill keeps her output at 30 gallons, what happens to the market price?

Accepted Answer

The market price decreases.

Question 8

Suppose the demand for water is given by $$P = 120 - Q. If $$the total quantity supplied is 90 gallons, what is the market price?

Accepted Answer

$$P = 120 - 90 = 30$$

Question 9

If Jack and Jill both act to maximize their own profit without cooperation, what economic outcome is most likely?

Accepted Answer

They will produce more than the monopoly output but less than the competitive output.

Question 10

If Jack and Jill collude and act as a monopoly, what would be their joint profit maximizing output, given $$P = 120 - Q$$ and zero cost?

Accepted Answer

$$Q = 60$$ gallons

Question 11

If the marginal revenue for the duopoly is $$MR = 120 - 2Q$$, what is the profit-maximizing total output for the duopoly?

Accepted Answer

$$MR = 0 \Rightarrow 120 - 2Q = 0 \Rightarrow Q = 60$$

Question 12

If Jack and Jill both produce 40 gallons each, what is the market price and each individual's profit?

Accepted Answer

Market price: $$P = 120 - 80 = 40$$; Profit per person: $$40 	imes 40 = 1600$$

Question 13

Which of the following is a likely consequence if Jack and Jill both increase their output simultaneously?

Accepted Answer

Market price will fall and both may earn lower profits.

Question 14

If the market demand is $$P = 120 - Q$$ and Jack and Jill split the monopoly output equally, how much does each produce?

Accepted Answer

Each produces 30 gallons.

Question 15

If Jack produces 30 gallons and Jill produces 40 gallons, what is the total quantity and market price?

Accepted Answer

Total quantity: 70 gallons; Market price: $$P = 120 - 70 = 50$$

Question 16

Which of the following best describes the Nash Equilibrium in the context of Jack and Jill's water market?

Accepted Answer

Each chooses their output level assuming the other's choice is fixed, resulting in a stable outcome.

Question 17

If the market price falls below the average cost of production, what should Jack and Jill do to maximize profit?

Accepted Answer

Reduce output or exit the market.

Question 18

If Jack and Jill are able to collude perfectly, what is the effect on consumer surplus compared to the non-collusive duopoly outcome?

Accepted Answer

Consumer surplus decreases.

Question 19

Suppose the government imposes a price ceiling of $$P = 50 in $$the water market. If Jack and Jill together supply 70 gallons, does the price ceiling bind?

Accepted Answer

Yes, because the equilibrium price would be $$P = 120 - 70 = 50$$, so the ceiling is just binding.

Oligopoly, Game Theory, and Strategic Decision-Making: The Case of Water Supply

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