Consider a town in which only two residents, Paolo and Sharon, own wells that produce water safe for drinkang. Paolo and Sharon can purnp 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 sctiedule for water Suppose Paolo and Sharon form a cartel and behave as a monopolist. The profit-maximizing price is per gallon, and the totat output is gallons, As part of their cartel agreement, Paolo and Sharon agree to split production equally. Therefore, Paolo's protit is and Sharon's profitis Suppose that Paolo and Sharon have been successfully operating as a cartel. They each charpe the monopoly price and seli half of the monopoly quantity. Then one night before going to sleep, Paolo says to himsell, "Sharon and 1 aren't the best of friends amyway. If t increase my production to 45 gatfons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Paolo implements his new plan, the price of water to per gallon, Given Sharon and Paolo's production levels. Module 9 Homework: Chapter 24 Suppose Paolo and Sharon 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 apreement, Paolo and Sharon agree to split production equally. Therefore, Paolo's profit is. and Sharon's profit is Suppose that Paolo and Sharon 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, Paolo says to himself, "Sharon and t aren't the best of friends anyway. If t increase my production to 45 gallons more than the cartel amount, I can increase my profit even though her prolit goes down. I will do that starting tomorrow." Aiter Paolo implements his new plan, the pnce of water per gallon. Given Sharon and Paolo's production levels, Poolo's profit becomes and Sharon's profit becomes Because Paolo has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Sharon decades that she will also increase her production to 45 gallons more than the cartel amount. After Sharon increases her productuon, Paolo's profit becomes 1, Sharon's profic becomes and total profit (the sum of the protits of Paclo and Sharon) is now