Hi, could you please help me solve this? I didn't understand where the numbers come from in the solutions. Could you explain step by step how to solve this? P.S. The textbook is called "Economics" by Krugman & Wells. Chapter 14, Problem 4. 4. In France, the market for bottled water is controlled by two large firms,Perrier and Evian. Each firm has a fixed cost of €1 million and aconstant marginal cost of €2 per liter of bottled water (€1 = 1 euro).The following table gives the market demand schedule for bottledwater in France.Price of bottled water (per liter)€10987654321Quantity of bottled water demanded(millions of liters)012356789 a. Suppose the two firms form a cartel and act as a monopolist.Calculate marginal revenue for the cartel. What will the monopolyprice and output be? Assuming the firms divide the output evenly,how much will each produce and what will each firm's profit be?b. Now suppose Perrier decides to increase production by 1 millionliters. Evian doesn't change its production. What will the newmarket price and output be? What is Perrier's profit? What is Evian'sprofit?c. What if Perrier increases production by 3 million liters? Eviandoesn't change its production. What would Perrier's output andprofit be relative to those in part b?d. What do your results tell you about the likelihood of cheating onsuch agreements?

Solving all part, (a) to (d) in below steps respectively.

Answered: a. Suppose the two firms form a cartel…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Firms In Competitive Markets

Section: Chapter Questions

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Hi, could you please help me solve this? I didn't understand where the numbers come from in the solutions. Could you explain step by step how to solve this?

P.S. The textbook is called "Economics" by Krugman & Wells. Chapter 14, Problem 4.

4. In France, the market for bottled water is controlled by two large firms,
Perrier and Evian. Each firm has a fixed cost of €1 million and a
constant marginal cost of €2 per liter of bottled water (€1 = 1 euro).
The following table gives the market demand schedule for bottled
water in France.
Price of bottled water (per liter)
€10
9
8
7
6
5
4
3
2
1
Quantity of bottled water demanded
(millions of liters)
0
1
2
3
5
6
7
8
9

a. Suppose the two firms form a cartel and act as a monopolist.
Calculate marginal revenue for the cartel. What will the monopoly
price and output be? Assuming the firms divide the output evenly,
how much will each produce and what will each firm's profit be?
b. Now suppose Perrier decides to increase production by 1 million
liters. Evian doesn't change its production. What will the new
market price and output be? What is Perrier's profit? What is Evian's
profit?
c. What if Perrier increases production by 3 million liters? Evian
doesn't change its production. What would Perrier's output and
profit be relative to those in part b?
d. What do your results tell you about the likelihood of cheating on
such agreements?

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