Please help to answer all but if you're unable, then start from this question please.***Suppose that Dmitri and Frances 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, Dmitri says to himself, "Frances and I aren't the best of friends anyway. If I increase my production by 40 gallons, 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 water (decreases or increases?) to $_____ per gallon. Given Frances and Dmitri's production levels, Dmitri's profit becomes $____ and Frances's profit becomes $____. . ### Price and Revenue Analysis in a Monopolistic Water Supply Market#### IntroductionConsider a town in which only two residents, Eric and Ginny, own wells that produce water safe for drinking. Eric and Ginny can pump and sell as much water as they want at no cost. For them, total revenue equals profit. Below is the town's demand schedule for water, represented in a table.#### Demand Schedule| **Price (Dollars per gallon)** | **Quantity Demanded (Gallons of water)** | **Total Revenue (Dollars)** ||--------------------------------|------------------------------------------|------------------------------|| 4.20 | 0 | 0 || 3.85 | 40 | 154.00 || 3.50 | 80 | 280.00 || 3.15 | 120 | 378.00 || 2.80 | 160 | 448.00 || 2.45 | 200 | 490.00 || 2.10 | 240 | 504.00 || 1.75 | 280 | 490.00 || 1.40 | 320 | 448.00 || 1.05 | 360 | 378.00 || 0.70 | 400 | 280.00 || 0.35 | 440 | 154.00 || 0 | 480 | 0 |#### Market BehaviorSuppose Eric and Ginny form a cartel and behave as a monopolist. In this scenario:- The **profit-maximizing price** is \$____ per gallon.- The **total output** is ____ gallons.As part of their cartel agreement, Eric and Ginny agree to split production equally. Consequently:- **Eric's profit** is \$____.- **Ginny’s profit** is \$____.Suppose that Eric and Ginny have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity.#### Graph/Diagram AnalysisIf there were a graph included in the reference, it would typically show:- **Price** on the vertical axis.- **Quantity demanded** on the horizontal axis.- A **d ### Understanding Cartel Behavior: An Economic PerspectiveThis educational simulation explains the dynamics when two firms, Eric and Ginny, form a cartel and behave as a monopolist in the market. Follow along to understand how their production decisions affect their profits and the overall market price.#### Initial Cartel Agreement1. **Monopoly Price and Output:** The profit-maximizing price is $___ per gallon, and the total output is ___ gallons.2. **Equal Production Split:** Eric and Ginny agree to split production equally. Therefore, Eric's profit is $_____, and Ginny's profit is $_____.#### Eric's Decision to Increase OutputEric and Ginny have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. One night, Eric decides to increase his production by 40 gallons more than the cartel amount, believing he can increase his profit.#### Impact on Market Price and Eric's ProfitAfter Eric implements his new plan, the price of water drops to $_____ per gallon due to increased supply. Given Ginny and Eric’s new production levels,- Eric's profit becomes $_____.- Ginny's profit becomes $_____.#### Ginny's Reaction to Eric's CheatingUpon realizing Eric’s increased output, Ginny also decides to increase her production by 40 gallons more than the cartel amount, leading to further market adjustments.#### New EquilibriumAfter Ginny increases her production:- Eric's profit becomes $_____.- Ginny's profit becomes $_____.- Total profit (sum of Eric and Ginny's profits) is now $_____.#### Analysing Production Effects**Question:** True or False: Based on the fact that both Eric and Ginny increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity.- True- False#### Explanation of BehaviorInitially, Eric and Ginny start by behaving cooperatively. However, when Eric decides to cheat by increasing his production, Ginny responds similarly. Ginny’s output decisions are reactive, based on Eric's actions.This behavior is an example of ____ (options might include terms like "Nash Equilibrium," "Tit-for-Tat," etc.).This simulation demonstrates the instability of cartels, where individual incentives can lead to cheating, resulting in decreased prices and profits compared to the cartel agreement. It highlights the delicate balance between cooperative behavior and

A monopoly is a market structure where a single company has exclusive control over a product or…

Suppose Eric and Ginny form a cartel and behave as a monopolist. The profit-maximizing price is $ gallons. As part of their cartel agreement, Eric and Ginny agree to split production equally. Therefore, Eric's profit is $ Ginny's profit is S Suppose that Eric and Ginny 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, Eric says to himself, "Ginny and I aren't the best of friends anyway. If I increase my production to 40 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Eric implements his new plan, the price of water_ Eric's profit becomes $ After Ginny increases her production, Eric's profit becomes of the profits of Eric and Ginny) is now $ True to $ and Ginny's profit becomes $ Because Eric has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Ginny decides that she will also increase her production to 40 gallons more than the cartel amount. False per gallon, and the total output is and This behavior is an example of per gallon. Given Ginny and Eric's production levels, Ginny's profit becomes S True or False: Based on the fact that both Eric and Ginny increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. and total profit (the sum Note that Eric and Ginny started by behaving cooperatively. However, once Eric decided to cheat, Ginny decided to cheat as well. In other words, Ginny's output decisions are based on Eric's actions.

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Monopolistic Competition

Section: Chapter Questions

Problem 8PA