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 tabie shows the town's demand schedule for water. Suppose Khalsd and Sabrina form a cartel and behave as a monopolist. The profte-maximizing price is output is gallons. As part of their cartel agreement, Khalid and Sabrina agree to spit production equaliy. Therefore, Khalid's profit is , and Sabrinals profit is Suppose Khalid and Sabrina form a cartel and behave as a monopollst. The profit-maximizing price is per gallon, and the total output is gallons. As part of thelr cartel agreement, Khalid and Sabrina agree to split production equally. Therefore, Khalid's profit is , and Sabrina's profit is Suppose that Khalid and Sabrina have been successfully operating as a cartel. They each charge the monopoly price and seli 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 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." Atter Khalid implements his new plan, the price of water to levels, Khalid's profit becomes and Sabrina's profit becomes Because Khalid has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Sabrina decides that she will also increase her production to 35 gallons more than the cartel amount. After Sabrina increases her production, Khalid's profit becomes sum of the profits of Khalid and Sabrina) is now , Sabrina's profit becomes , and total profit (the 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 targer than the price effect at that quantity. True False Khalid and Sabrina have each cheated on their cartel agreement and increased production by 35 gallons more than the cartel amount. Hownver, they both reaize that if they continue to increase output beyond this amount, theyil each suffer a decrease in profit. (To see this for yourseif, consider Khatid's profit when he produces 70 gallons more than the cartel smount compsred to his profit when he produces 35 gallons more than the cartel umount) Neather Khalid nor Sabrina has an incentive to increase output further, nor does either have an incentive to decrease output, This outcome is an example of example of