9. Breakdown of a cartel agreement Consider a town in which onlyr two raidenisr Gilberto and Jua nilslr own wells that pmd uce water safe for drinking. Gilberto and Juanita can purrq: and
sell as much Iwater as they want at no oost. For them. total revenue equals profit. The Following table shows the town's demand schedule For water. Price Quantity Demanded Total Revenue [Wimpy gaflon} [Gallons of water) ffloflars)
5.00 0 0
5.5!] 45 $24150
5.00 90 $431.00
4.5!] 135 $50150
4.00 130 $?20.00
3.5!] 225 433150
3.00 2]"0 $010.00
2.5] 315 $337.50
2.00 360 $T20.00
1.5a 4o5 $507.5o
1.00 450 $450.00
0.5!] 495 $24?.50
0 540 0 Suppose Gilberto and Juanita form a cartel and behave as a monopolist. The meit-maxirrizing price is per gallon. and the total
output is |:| gallons. #5 part of their cartel agreement. Gilberto and Juanila agree to split production equally. Therefore, Gilberto's profit is Suppose that Gilberto and Juanila have been succasfully opelating as a cartel. They each charge the monopon prioe and sell half of the monopolyr
quantity. Then one night beforegoing to sleep, Gilberto says to himself, "Juanita and I aren't the best of friends anyway. If I incmase my pmduction to
45 gallons rrnm than the cartel amount. I can increase my profit even though her profit goes clown. I will do that slarting torrerrow." After Gilberto implements his new plan, the price of water 7 to— per gallon. Given Jua nilsl and Gilberto's production
levels. Gilberto's profit becorr_ and Juanita's profit lJEIIl-ITE . Because Elberto has deviated from the artel agreement and increased his output of water to 45 gallons more than the cartel amount. Juanita decides
that she will also increase her production to 45 gallons mom than the cartel amount. After Juaniia increasE her production, Gilberto's profit becomes _ Juanita's profit becomes , and total pmfit
{the sumof the profits of Elberto and Juanilaj is now .

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