consider a town in which two residents, carlos and deborah, own wells that produce water safe for drinking. carlos and deborah 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: suppose carlose and deborah form a cartel and behave as a monopolist. the profit maximizing price is __________ per gallon, and total output is _________ gallons. as part of their cartel agreement, carlos and deborah agree to split production equally. therefore carlos profit is ___________ and Deborah's profit is __________. suppose that carlos and deborah have been successfully operating as a cartel. they each change the monopoly price and sell half of the monopoly price and sell half of the monopoly quanity. then one night before going to sleep carlos says to himself, " Deborah and I aren't the best of friends anyway. if I increase my production to 25 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow. after carlos implements his new plan the price of water __________ (decreases or increases) to _________ per gallon. given deborah and carlos production levels, carlos's profit becomes ____________ and Deborah's profit becomes ________. because carlos has deviated from the cartel agreement and increased his output of water to 25 gallons more than the cartel amount, deborah decides that she will also increase her production to 25 gallons more than the cartel amount. after deborah increases production carlos profit becomes ______, deborah profit becomes ________, and total profit (the sum of the profits of carlos and deborah) is now ________. carlos and deborah have each cheated on their cartel agreement and increase production by 25 gallons more than the cartel amount. however they both realize that if they continue to increase output beyond this amount they will each suffer a decrease in profit. (to see this for yourself, consider carlos profit when he produces 50 gallons more than the cartel amount compared to his profit when he produces 25 gallons more than the cartel amount). neither carlos nor deborah has an incentive to increase output further nor does either have an incentive to decrease output. this outcome is an example of _____________ ( resale price maintenance, tying, predatory pricing, a Nash equilibrium).

ENGAGE Homework: Monopolistic Competition and Oligopoly nsider a town in which only two residents, Carlos and Deborah, own well ll as much water as they want at no cost. For them, total revenue equals Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 5.40 0 0 4.95 25 124 4.50 50 225 4.05 75 304 3.60 100 360 3.15 125 394 2.70 150 405 2.25 175 394 1.80 200 360 1.35 225 304 0.90 250 225 0.45 275 124 Suppose Carlos and Deborah form a cartel and behave as a monopolist. The pro output is gallons. As part of their cartel agreement, Carlos and Deborah and Deborah's profit is $ O O D