352PART FIVEFIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRYsmall quantity of output and charging a price above marginal cost. Yet becauseeach oligopolist cares about only its own profit, there are powerful incentives atwork that hinder a group of firms from maintaining the monopoly outcome.A DUOPOLY EXAMPLETo understand the behavior of oligopolies, let’s consider an oligopoly with onlytwo members, called a duopoly.Duopoly is the simplest type of oligopoly. Oligop-olies with three or more members face the same problems as oligopolies with onlytwo members, so we do not lose much by starting with the case of duopoly.Imagine a town in which only two residents—Jack and Jill—own wells thatproduce water safe for drinking. Each Saturday, Jack and Jill decide how many gal-lons of water to pump, bring the water to town, and sell it for whatever price themarket will bear. To keep things simple, suppose that Jack and Jill can pump asmuch water as they want without cost. That is, the marginal cost of water equalszero.Table 16-1 shows the town’s demand schedule for water. The first column
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