Suppose Eric and Ginny form a cartel and behave as a monopolist. The profit-maximizing price is |$ per litre, and the total output is litres. As part of their cartel agreement, Eric and Ginny agree to split production equally. Therefore, Eric's profit is $ , and Ginny's profit is $ Suppose that Eric and Ginny 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, Eric says to himself, "Ginny and I aren't the best of friends anyway. If I increase my production to 35 litres more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Eric implements his new plan, the price of water to $ per litre. Given Ginny and Eric's production levels, Eric's profit becomes $ and Ginny's profit becomes $ Because Eric has deviated from the cartel agreement and increased his output of water to 35 litres more than the cartel amount, Ginny decides that she will also increase her production to 35 litres more than the cartel amount. After Ginny increases her production, Eric's profit becomes $ Ginny's profit becomes $ and total profit (the sum of the profits of Eric and Ginny) is now $ True or False: Based on the fact that both Eric and Ginny increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity.True or False: Based on the fact that both Eric and Ginny 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 Eric and Ginny started by behaving cooperatively. However, once Eric decided to cheat, Ginny decided to cheat as well. In other words, Ginny's output decisions are based on Eric's actions. This behaviour is an example ofConsider a town in which only two residents, Eric and Ginny, own wells that produce water safe for drinking. Eric and Ginny 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 litre) ( Litres of water) (Dollars) 3.60 0 0 3.30 35 $115.50 3.00 70 $210.00 2.70 105 $283.50 2.40 140 $336.00 2.10 175 $367.50 1.80 210 $378.00 1.50 245 $367.50 1.20 280 $336.00 0.90 315 $283.50 0.60 350 $210.00 0.30 385 $115.50 420 0