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

Weekly Quantity Price Weekly Total Revenue
(in gallons) (and Total Profit)
0 $12 $0
25 11 275
50 10 500
75 9 675
100 8 800
125 7 875
150 6 900
175 5 875
200 4 800
225 3 675
250 2 500
275 1 275
300 0 0

1. Refer to the table above. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will the quantity of water will each of them produce once the Nash equilibrium is reached?

a. Each will produce 50 gallons, for a total of 100 gallons.
b. Each will produce 75 gallons, for a total of 150 gallons.
c. Each will produce 100 gallons, for a total of 200 gallons.
d. Each will produce 125 gallons, for a total of 250 gallons.

2. Refer to the table above. As long as Kunal and Naj operate as a profit-maximizing monopoly, what will their combined weekly revenue amount to?

a) $450 b) $675 c) $875 d) $900

3. Refer to the table above. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. Once the Nash equilibrium is reached, how much profit will each producer earn?

a) $400.00 b) $437.50 c) $450.00 d) $800.00