4.00 180 720.00 3.50 225 787.50 3.00 270 810.00 2.50 315 787.50 2.00 360 720.00 1.50 405 607.50 1.00 450 450.00 0.50 495 247.50 0 540 0 Suppose Rajiv and Simone form a cartel and behave as a monopolist. The profit-maximizing price is $ is per gallon, and the total output gallons. As part of their cartel agreement, Rajiv and Simone agree to split production equally. Therefore, Rajiv's profit is $ and Simone's profit is $ Suppose that Rajiv and Simone have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Rajiv says to himself, "Simone and I aren't the best of friends anyway. If I increase my production by 45 gallons, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Rajiv implements his new plan, the price of water Rajiv's profit becomes $ to $ and Simone's profit becomes $ per gallon. Given Simone and Rajiv's production levels, Because Rajiv has deviated from the cartel agreement and increased his output of water by 45 gallons, Simone decides that she will also increase her production by 45 gallons. After Simone increases her production, Rajiv's profit becomes sum of the profits of Rajiv and Simone) is now $ Simone's profit becomes and total profit (the Note that Rajiv and Simone started by behaving cooperatively. However, once Rajiv decided to cheat, Simone decided to cheat as well. In other words, Simone's output decisions are based on Rajiv's actions. This behavior is an example of 6. The cartel Consider a town in which only two residents, Rajiv and Simone, own wells that produce water safe for drinking. Rajiv and Simone can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) 6.00 Quantity Demanded Total Revenue (Gallons of water) (Dollars) 0 0 5.50 45 247.50 5.00 90 450.00 4.50 135 607.50 4.00 180 720.00 3.50 225 787.50 3.00 270 810.00 2.50 315 787.50 2.00 360 720.00 1.50 405 607.50 1.00 450 450.00 0.50 495 247.50 0 540 0 Suppose Rajiv and Simone form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output is gallons. As part of their cartel agreement, Rajiv and Simone agree to split production equally. Therefore, Rajiv's profit is $ and Simone's profit is $ Suppose that Rajiv and Simone have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Rajiv says to himself, "Simone and I aren't the best of friends anyway. If I increase my production by 45 gallons, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Rajiv implements his new plan, the price of water Rajiv's profit becomes $ to $ and Simone's profit becomes per gallon. Given Simone and Rajiv's production levels, Because Rajiv has deviated from the cartel agreement and increased his output of water by 45 gallons, Simone decides that she will also increase her production by 45 gallons.