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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 |$ 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 O False Note that Khalid and Sabrina started by behaving cooperatively. However, once Khalid decided to cheat, Sabrina decided to cheat as well. In other words, Sabrina's output decisions are based on Khalid's actions. This behavior is an example of3. Breakdown of a cartel agreement 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 themr total revenue equals profit. The following table shows the town's demand schedule for water. Price Quantity Demanded Total Revenue (Doars per gallon) (Gallons of water] {Boilers} 5.40 0 0 4.9.5 45 $222.35 4.50 90 5405.00 4.05 135 $54535 3.50 130 5543.00 3.15 225 $?033.5 230 230 5329.00 2.25 315 $303.35 1.30 350 5643.00 1.35 405 $54535 0.90 450 5405.00 0.45 495 $222.35 0 540 0 Suppose Khalid and Sabrina form a cartel and behave as a monopolist. The protmaximizing price isl: per gallon, and the total output is: gallons. As part of their cartel agreementJ Khalid and Sabrina agree to split production equally. Therefore, Khalid's profit is r and Sabrina's profit is . If: TI 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 sleepr Khalid says to himself, "Sabrina and I aren't the best of friends anyway. IfI increase my production to 45 gallons more than the cartel amount, I can increase my prot even though her prot goes down. I will do that starting tomorrow." After Khalid implements his new planr the price of water V to per gallon. Given Sabrina and Khalid's production levels, Khalid's profit becomes and Sabrina's prot becomes . Because Khalid has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Sabrina decides that she will also increase her production to 45 gallons more than the cartel amount