Consider a town in which only two residents, Jacques and Kyoko, own wells that produce water safe for drinking. Jacques and Kyoko 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 Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 4.20 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 $154.00 0 480 0 Suppose Jacques and Kyoko form a cartel and behave as a monopolist. The profit-maximizing price is |$ per gallon, and the total output is gallons. As part of their cartel agreement, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is $ , and Kyoko's profit is |$ Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko 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 Jacques implements his new plan, the price of water to $ per gallon. Given Kyoko and Jacques's production levels, Jacques's profit becomes | $ and Kyoko's profit becomes $Consider a town in which only two residents, Jacques and Kyoko, own wells that produce water safe for drinking. Jacques and Kyoko 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 Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (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 $154.00 0 480 0 Suppose Jacques and Kyoko form a cartel and behave as a monopolist. The profit-maximizing price is|$ per gallon, and the total output is gallons. As part of their cartel agreement, Jacques and Kyoko agree to split production equally. Therefore, Jacques's profit is $ , and Kyoko's profit is |$ Suppose that Jacques and Kyoko 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, Jacques says to himself, "Kyoko 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 Jacques implements his new plan, the price of water to $ per gallon. Given Kyoko and Jacques's production levels, Jacques's profit becomes | $ and K becomes $ decreases Because Jacques has deviated from the cartel agreement a increases I his output of water to 40 gallons more than the cartel amount, Kyoko decidesBecause Jacques has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Kyoko decides that she will also increase her production to 40 gallons more than the cartel amount. After Kyoko increases her production, Jacques's profit becomes Kyoko's profit becomes , and total profit (the sum of the profits of Jacques and Kyoko) is now |$ True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was smaller than the price effect at that quantity. O True O False Jacques and Kyoko have each cheated on their cartel agreement and increased production by 40 gallons more than the cartel amount. However, they both 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 Jacques's profit when he produces 80 gallons more than the cartel amount compared to his profit when he produces 40 gallons more than the cartel amount.) Neither Jacques nor Kyoko has an incentive to increase output further, nor does either have an incentive to decrease output. This outcome is an example ofBecause Jacques has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Kyoko decides that she will also increase her production to 40 gallons more than the cartel amount. After Kyoko increases her production, Jacques's profit becomes Kyoko's profit becomes and total profit (the sum of the profits of Jacques and Kyoko) is now |$ True or False: Based on the fact that both Jacques and Kyoko increased production from the initial cartel quantity, you know that the output effect was smaller than the price effect at that quantity. O True O False Jacques and resale price maintenance on their cartel agreement and increased production by 40 gallons more than the cartel amount. However, they both realize ease output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider tying Jacques's p allons more than the cartel amount compared to his profit when he produces 40 gallons more than the cartel amount. ) predatory pricing a Nash equilibrium Neither Jac tive to increase output further, nor does either have an incentive to decrease output. This outcome is an example of