Answered step by step
Verified Expert Solution
Question
1 Approved Answer
5. Because producing maple syrup is an incredibly time-consuming process, the supply of maple syrup in a small Canadian town is controlled by two sugar
5. Because producing maple syrup is an incredibly time-consuming process, the supply of maple syrup in a small Canadian town is controlled by two sugar makers (a producer of maple syrup is commonly called a sugar maker), Liam and Emma. The demand for maple syrup is given by P = 30 -20, and the marginal and average total cost of producing maple syrup is $6 per gallon. Because producing maple syrup requires a great deal of work and preparation, each year Liam and Emma make a binding decision about how many gallons of syrup to produce. Suppose that Liam, fed up with Emma's behavior, also begins producing an extra gallon of maple syrup each year. g. How does the extra production affect the price of maple syrup in the marketplace and what is the new price? h. Calculate Liam's and Emma's individual profit. Compared to what you found in (e), how much did Liam gain by cheating and how much did Liam's cheating cost Emma? i. How much potential profit does the group lose as a result of both Liam and Emma cheating from the original agreement? j. Demonstrate and explain why neither Liam nor Emma would want to cheat any further on their agreement. (Hint: show what happens if one cheats by producing another additional gallon of maple syrup)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started