Its in the picture. True or False: Based on the fact that both Dmitri and Frances increased production from the initial cartel quantity, you know that the output effect waslarger than the price effect at that quantity.O TrueO FalseDmitri and Frances have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, theyboth realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, considerDmitri's profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartelamount.)Neither Dmitri nor Frances has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is anexample of 3. Breakdown of a cartel agreementConsider a town in which only two residents, Dmitri and Frances, own wells that produce water safe for drinking. Dmitri and Frances can pump and sellas 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.PriceQuantity Demanded Total Revenue(Dollars per gallon)(Gallons of water)(Dollars)6.005.5045$247.505.0090$450.004.50135$607.504.00180$720.003.50225$787.503.00270$810.002.50315$787.502.00360$720.001.50405$607.501.00450$450.000.50495$247.50540Suppose Dmitri and Frances form a cartel and behave as a monopolist. The profit-maximizing price is Sper gallon, and the totalgallons. As part of their cartel agreement, Dmitri and Frances agree to split production equally. Therefore, Dmitri's profit isand Frances's profit is Soutput is%24Suppose that Dmitri and Frances 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, Dmitri says to himself, "Frances and I aren't the best of friends anyway. If I increase my production to45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Dmitri implements his new plan, the price of waterlevels, Dmitri's profit becomes Sto $per gallon. Given Frances and Dmitri's productionand Frances's profit becomes $Because Dmitri has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Frances decidesthat she will also increase her production to 45 gallons more than the cartel amount.After Frances increases her production, Dmitri's profit becomes ssum of the profits of Dmitri and Frances) is now sFrances's profit becomesand total profit (the

The following problem has been solved as follows:

rue or False: Based on the fact that both Dmitri and Frances increased production from the initial cartel quantity, you know that the output effect w erger than the price effect at that quantity. O True O False mitri and Frances have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they oth realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider mitri's profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel mount.) leither Dmitri nor Frances has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an xample of

rue or False: Based on the fact that both Dmitri and Frances increased production from the initial cartel quantity, you know that the output effect w erger than the price effect at that quantity. O True O False mitri and Frances have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they oth realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider mitri's profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel mount.) leither Dmitri nor Frances has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an xample of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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