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Please help 3. Breakdown of a cartel agreement Consider a town in which only two residents, Dmitri and Frances, own wells that produce water safe
Please help 3. Breakdown of a cartel agreement Consider a town in which only two residents, Dmitri and Frances, own wells that produce water safe for drinking. Dmitri and Frances 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. Quantity Demanded (Gallons of water) Total Revenue (Dollars) $247.50 Price (Dollars per gallon) 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 $450.00 $607.50 $720.00 $787.50 $810.00 315 405 450 $787.50 $720.00 $607.50 $450.00 $247.50 0 495 540 Suppose Dmitri and Frances 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, Dmitri and Frances agree to split production equally. Therefore, Dmitri's profit is , and Frances's profit is $ Suppose that Dmitri and Frances 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, Dmitri says to himself, "Frances and I aren't the best of friends anyway. If I increase my production to 45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." per gallon. Given Frances and Dmitri's production levels, After Dmitri implements his new plan, the price of water to $ Dmitri's profit becomes $ and Frances's
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