(Solved): Consider a town in which only two residents, Amrit and Aideen, own wells that produce water safe fo ...

Consider a town in which only two residents, Amrit and Aideen, own wells that produce water safe for drinking. Amrit and Aldeen 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. Suppose Armrit and Aideen form a cartel and behave as a monopolist, The profit-maximizing price is per gallon, and the total output gallons. As part of their cartel agreement, Amnit and Aldeen agree to split production equally. Therefore, Amrit's profit is and Aideen's profit is Suppose that Amrit and Aideen have been successtully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to steep, Amrit says to himself, "Aideen 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 thougi. her profit goes down. I will do that starting tomorrow." Atter Amnt implements his new plan, the price of water to per gallon. Given Aideen and Amrit's production levels, Amrit's profit becomes and Aldeen's profit becomes Because Amrit has deviated from the cartel agreement and increased his output of water to 40 gallons more than the cartel amount, Aideen decides that she will also increase her production to 40 gallons mose than the cartel amount. After Adeen increases her production, Amrit's profit becomes Aideen's profit becomes and total profit (the 5um of the profits of Amrit and Aideen) is now. True or False: Based on the foct that both Amnt and Aldeen increased productoo fram the initial cartel quantity. you know that the output effect was larger than the price effect at that quantity. True or Faise: Based on the fact that both Amrit and Aideen increased production from the initial cartel quantity; you know that the output effect was larger than the ptice effect at that quantity. True False Note that Amrit and Adeen started by behaving cooperatively. However, once Amrit decided to cheat, Adeen decided to cheat as weil. In other words, Aideen's output decisions are based on Amrit's actoons. This behavior is an example of