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Principles of Economics- Mankiw (5th) 345

Principles of Economics- Mankiw (5th) 345 - CHAPTER 16 O L...

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CHAPTER 16 OLIGOPOLY 355 “I could produce 30 gallons as well. In this case, a total of 60 gallons of water would be sold at a price of $60 a gallon. My profit would be $1,800 (30 gallons $60 a gallon). Alternatively, I could produce 40 gallons. In this case, a total of 70 gallons of water would be sold at a price of $50 a gallon. My profit would be $2,000 (40 gallons $50 a gallon). Even though total profit in the market would fall, my profit would be higher, because I would have a larger share of the market.” Of course, Jill might reason the same way. If so, Jack and Jill would each bring 40 gallons to town. Total sales would be 80 gallons, and the price would fall to $40. Thus, if the duopolists individually pursue their own self-interest when deciding how much to produce, they produce a total quantity greater than the monopoly quantity, charge a price lower than the monopoly price, and earn total profit less than the monopoly profit. Although the logic of self-interest increases the duopoly’s output above the
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