Handwritten plzzzz...i'll give you more votes asap...solve 15 mins 3. Breakdown of a cartel agreementConsider a town in which only two residents, Sam and Teresa, own wells that produce water safe for drinking. Sam and Teresa can pump and sell asmuch water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.PriceQuantity DemandedTotal Revenue(Dollars per gallon)(Gallons of water)(Dollars)3.603.3035$115.503.0070$210.002.70105$283.502.40140$336.002.10175$367.501.80210$378.001.50245$367.501.20280$336.000.90315$283.500.60350$210.000.30385$115.50420Suppose Sam and Teresa form a cartel and behave as a monopolist. The profit-maximizing price is $per gallon, and the total outputisgallons. As part of their cartel agreement, Sam and Teresa agree to split production equally. Therefore, Sam's profit is $and Teresa's profit is $Suppose that Sam and Teresa have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopolyquantity. Then one night before going to sleep, Sam says to himself, "Teresa and I aren't the best of friends anyway. If I increase my production to 35gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."per gallon. Given Teresa and Sam's production levels,After Sam implements his new plan, the price of waterSam's profit becomes $▼ to $and Teresa's profit becomes $Because Sam has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Teresa decidesthat she will also increase her production to 35 gallons more than the cartel amount.After Teresa increases her production, Sam's profit becomes $of the profits of Sam and Teresa) is now $Teresa's profit becomes $|, and total profit (the sumTrue or False: Based on the fact that both Sam and Teresa increased production from the initial cartel quantity, you know that the output effect waslarger than the price effect at that quantity.O TrueO FalseNote that Sam and Teresa started by behaving cooperatively. However, once Sam decided to cheat, Teresa decided to cheat as well. In other words,Teresa's output decisions are based on Sam's actions.This behavior is an example of 1. price of waterto- decreases- increases2. the behavior is an example of- a prisoner's dilemma-tying-a tit-for-tat strategy-a dominant strategy

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1. price of water to - decreases - increases 2. the behavior is an example of -- - - a prisoner's dilemma |3 -tying -a tit-for-tat strategy -a dominant strategy

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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