microeconomics book solution 15

Price of quantity of bottled bottled water water

Info icon This preview shows pages 5–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Price of Quantity of bottled bottled water water demanded Total revenue Marginal revenue (per liter) (millions of liters) (millions) (millions) 10 0 0 9 9 1 9 7 8 2 16 5 7 3 21 3 6 4 24 1 5 5 25 1 4 6 24 3 3 7 21 5 2 8 16 7 1 9 9 C H A P T E R 1 5 O L I G O P O LY S-213 S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-213
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Solution S-214 C H A P T E R 1 5 O L I G O P O LY 5. To preserve the North Atlantic fish stocks, it is decided that only two fishing fleets, one from the United States and the other from the European Union (EU), can fish in those waters. The accompanying table shows the market demand schedule per week for fish from these waters. The only costs are fixed costs, so fishing fleets maxi- mize profit by maximizing revenue. a. If both fishing fleets collude, what is the revenue-maximizing output for the North Atlantic fishery? What price will a pound of fish sell for? b. If both fishing fleets collude and share the output equally, what is the revenue to the EU fleet? To the U.S. fleet? c. Suppose the EU fleet cheats by expanding its own catch by 100 pounds per week. The U.S. fleet doesn’t change its catch. What is the revenue to the U.S. fleet? To the EU fleet? d. In retaliation for the cheating by the EU fleet, the U.S. fleet also expands its catch by 100 pounds per week. What is the revenue to the U.S. fleet? To the EU fleet? 5. a. The accompanying table calculates the total revenue for the entire North Atlantic fishery for different output quantities. The revenue-maximizing output is 2,000 pounds per week, which will fetch a price of $16 per pound. b. If they share the output equally, the U.S. and the EU fleets will each catch 1,000 pounds per week and have revenue of $16,000 per week. c. If the EU fleet cheats and catches 100 pounds more, the total caught will be 2,100 pounds, which will cause the price to fall to $15. The EU fleet’s revenue will now be 1,100 × $15 = $16,500, and the U.S. fleet’s revenue will fall to 1,000 × $15 = $15,000. d. Now the total caught will be 2,200 pounds, which will bring the price down to $14 per pound. Since each fleet now catches 1,100 pounds, each will have revenue of 1,100 × $14 = $15,400. Price of fish Quantity of fish (per pound) demanded (pounds) Total revenue $17 1,800 $30,600 16 2,000 32,000 15 2,100 31,500 14 2,200 30,800 12 2,300 27,600 Price of fish Quantity of fish (per pound) demanded (pounds) $17 1,800 16 2,000 15 2,100 14 2,200 12 2,300 S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-214
Image of page 6
Solution 6. Suppose that the fisheries agreement in Problem 5 breaks down, so that the fleets behave noncooperatively. Assume that the United States and the EU each can send out either one or two fleets. The more fleets in the area, the more fish they catch in total but the lower the catch of each fleet. The accompanying matrix shows the profit (in dollars) per week earned by the two sides. a. What is the noncooperative Nash equilibrium? Will each side choose to send out one or two fleets?
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern