Discover 4) Read Manga Online M Read Manga Onlin... ~ Leveling Up, By O... CENGAGE | MINDTAP Homework: Monopolistic Competition, Oligopoly, and Game Theory (Ch 11) Back to Assignment Attempts | 0.5 Keep the Highest 0.5 / 3 7. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette 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 $154.00 480 Suppose Sean and Yvette form a cartel and behave as a monopolist. The profit-maximizing price is |$ per gallon, and the total output is gallons. As part of their cartel agreement, Sean and Yvette agree to split production equally. Therefore, Sean's profit is |$ and Yvette's profit is $ Suppose that Sean and Yvette 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, Sean says to himself, "Yvette 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 Sean implements his new plan, the price of water to |$ per gallon. Given Yvette and Sean's production levels, Sean's profit becomes $ and Yvette's profit becomes $ Because Sean has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Yvette decides that she will also increase her production to 40 gallons more than the cartel amount. After Yvette increases her production, Sean's profit becomes |$ Yvette's profit becomes $ and total profit (the sum of the profits of Sean and Yvette) is now $ Grade It Now Save & Continue Continue without saving