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Suppose that James and Amber 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, James says to himself, "Amber and I aren't the best of friends anyway. If I increase my production to 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After James implements his new plan, the price of water James's profit becomes s After Amber increases her production, James's profit becomes s of the profits of James and Amber) is now s and Amber's profit becomes s Because James has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Amber decides that she will also increase her production to 35 gallons more than the cartel amount. True False to s per gallon. Given Amber and James's production levels, This behavior is an example of True or False: Based on the fact that both James and Amber increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. Amber's profit becomes s and total profit (the sum Note that James and Amber started by behaving cooperatively. However, once James decided to cheat, Amber decided to cheat as well. In other words, Amber's output decisions are based on James's actions.

Suppose that James and Amber 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, James says to himself, "Amber and I aren't the best of friends anyway. If I increase my production to 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After James implements his new plan, the price of water James's profit becomes s After Amber increases her production, James's profit becomes s of the profits of James and Amber) is now s and Amber's profit becomes s Because James has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Amber decides that she will also increase her production to 35 gallons more than the cartel amount. True False to s per gallon. Given Amber and James's production levels, This behavior is an example of True or False: Based on the fact that both James and Amber increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. Amber's profit becomes s and total profit (the sum Note that James and Amber started by behaving cooperatively. However, once James decided to cheat, Amber decided to cheat as well. In other words, Amber's output decisions are based on James's actions.

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Monopolistic Competition
Section: Chapter Questions
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Suppose that James and Amber 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, James says to himself, "Amber and I aren't the best of friends anyway. If I increase my production to 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After James implements his new plan, the price of water James's profit becomes s After Amber increases her production, James's profit becomes s of the profits of James and Amber) is now s and Amber's profit becomes s Because James has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Amber decides that she will also increase her production to 35 gallons more than the cartel amount. True False to s per gallon. Given Amber and James's production levels, This behavior is an example of True or False: Based on the fact that both James and Amber increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. , Amber's profit becomes s and total profit (the sum Note that James and Amber started by behaving cooperatively. However, once James decided to cheat, Amber decided to cheat as well. In other words, Amber's output decisions are based on James's actions.
Transcribed Image Text:Suppose that James and Amber 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, James says to himself, "Amber and I aren't the best of friends anyway. If I increase my production to 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After James implements his new plan, the price of water James's profit becomes s After Amber increases her production, James's profit becomes s of the profits of James and Amber) is now s and Amber's profit becomes s Because James has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Amber decides that she will also increase her production to 35 gallons more than the cartel amount. True False to s per gallon. Given Amber and James's production levels, This behavior is an example of True or False: Based on the fact that both James and Amber increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. , Amber's profit becomes s and total profit (the sum Note that James and Amber started by behaving cooperatively. However, once James decided to cheat, Amber decided to cheat as well. In other words, Amber's output decisions are based on James's actions.
3. Breakdown of a cartel agreement Consider a town in which only two residents, James and Amber, own wells that produce water safe for drinking. James and Amber 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 (Dollars per gallon) 4.80 4.40 4.00 3,60 3.20 2.80 2.40 2.00 1.60 1.20 0.80 0.40 0 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 385 420 Total Revenue (Dollars) 0 $154.00 $280.00 $378.00 $448.00 $490.00 $504.00 $490.00 $448.00 $378.00 $280.00 $154.00 0 Suppose James and Amber 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, James and Amber agree to split production equally. Therefore, James's profit is s is and Amber's profit is s
Transcribed Image Text:3. Breakdown of a cartel agreement Consider a town in which only two residents, James and Amber, own wells that produce water safe for drinking. James and Amber 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 (Dollars per gallon) 4.80 4.40 4.00 3,60 3.20 2.80 2.40 2.00 1.60 1.20 0.80 0.40 0 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 385 420 Total Revenue (Dollars) 0 $154.00 $280.00 $378.00 $448.00 $490.00 $504.00 $490.00 $448.00 $378.00 $280.00 $154.00 0 Suppose James and Amber 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, James and Amber agree to split production equally. Therefore, James's profit is s is and Amber's profit is s
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