3. Breakdown of a cartel agreement: Consider a town in which only two recidents, Isaiah and Dalla, own wells that produce water safe for drinking. Isaiah and Dalia can pump and seil 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. Suppose fsaiah and Dalia form a carted and behave as a monopolist. The profit-maximizing price is is gallons. As part of their cartel agreement, Isaiah and Dalia agree to split production equally. Therefore, Isalah's profit is and Dalia's profit is Suppose that Isaiah and Dalia 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, Isaiah says to himselt, "Dalia and 1 area't the best of friends anyway. If 1 increase my production to 35 gallons more than the cartel amount, 1 can increase my profit even though her profit goes down. 1 will do that starting tomorrow." After Isalah implements his new plan, the price of water to per gallon. Given Dalia and tsaiah's production levels, Isaiah's profit becomes "- Dalia's profit becomes Because lsaiah has devated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Dalia decifes : that she will also increase her groduction to 35 gallons more than the cartel anount. After Dalla increases her production, Isaiah's profit becomes of the srofits of Isalah and Dalia) is now Dalia's profit becomes and total profit (the sum) True or False: Based on the fact that both Isaiah and Dalia increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. True False Note that Isaiah and Dalia started by behaving cooperatively. However, once Isalah decided to cheat, Dalia decided to cheat as weil. In other wordt, Dalla's output decisions are based on Isalah's actions. This behavior is an example of