Consider a town in which only two residents, Khalid and Sabrina, own wells that produce water safe for drinking. Khalid and Sabrina 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) (Galions of water) (Dollars) 3.60 0 0 3.30 40 $132.00 3.00 80 $240.00 2.70 120 $324.00 2.40 160 $384.00 2.10 200 $420.00 1.80 240 $432.00 1.50 280 $420.00 1.20 320 $384.00 0.90 360 $324.00 0.60 400 $240.00 0.30 440 $132.00 0 480 0 Suppose Khalid and Sabrina form a cartel and behave as a monopolist. The profit-maximizing price is per gallon, and the total output isE gallons. As part of their cartel agreement, Khalid and Sabrina agree to split production equally. Therefore, Khalid's profit is Suppose that Khalid and Sabrina 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, Khalid says to himself, "Sabrina 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 Khalid implements his new plan, the price of water v to per gallon. Given Sabrina and Khalid's production levels, Khalid's profit becomes and S becomes . 1 that she will also increase her production to 40 gallons After Sabrina increases her production, Khalid's profit becomes , Sabrina's profit becomes , and total profit (the sum of the profits of Khalid and Sabrina) is now . Because Khalid has deviated from the cartel agreement his output of water to 40 gallons more than the cartel amount, Sabrina decides cartel amount. True or False: Based on the fact that both Khalid and Sabrina increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. O True tying O False a tit-for-tat strategy Note that Khalid and Sabrina st a prisoners' dilemma eratively. However, once Khalid decided to cheat, Sabrina decided to cheat as well. In other words, Sabrina's output decisio $ actions. a dominant strategy This behavior is an example of