Suppose that Musashi and Rina have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopolyquantity. Then one night before going to sleep, Musashi says to himself, "Rina and I aren't the best of friends anyway. If I increase my production to35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Musashi implements his new plan, the price of waterto $per gallon. Given Rina and Musashi's production levels,Musashi's profit becomes $and Rina's profit becomes $Because Musashi has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Rina decidesthat she will also increase her production to 35 gallons more than the cartel amount.After Rina increases her production, Musashi's profit becomes $Rina's profit becomes $and total profit (the sum ofthe profits of Musashi and Rina) is now $True or False: Based on the fact that both Musashi and Rina increased production from the initial cartel quantity, you know that the output effect wassmaller than the price effect at that quantity.O TrueFalseNote that Musashi and Rina started by behaving cooperatively. However, once Musashi decided to cheat, Rina decided to cheat as well. In other words,Rina's output decisions are based on Musashi's actions.This behavior is an example of 3. Breakdown of a cartel agreementConsider a town in which only two residents, Musashi and Rina, own wells that produce water safe for drinking. Musashi and Rina can pump and sell asmuch water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.PriceQuantity DemandedTotal Revenue(Dollars per gallon)(Gallons of water)(Dollars)3.603.3035$115.503.0070$210.002.70105$283.502.40140$336.002.10175$367.501.80210$378.001.50245$367.501.20280$336.000.90315$283.500.60350$210.000.30385$115.50420Suppose Musashi and Rina form a cartel and behave as a monopolist. The profit-maximizing price is $per gallon, and the total outputisgallons. As part of their cartel agreement, Musashi and Rina agree to split production equally. Therefore, Musashi's profit is%2$, and Rina's profit is $

If marginal profit gets negative, producing more output will reduce total profits. Total profit is…

ns more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." usashi implements his new plan, the price of water 's profit becomes $ to per gallon. Given Rina and Musashi's productic and Rina's profit becomes $ e Musashi has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Rina de e will also increase her production to 35 gallons more than the cartel amount. na increases her production, Musashi's profit becomes $ Rina's profit becomes $ , and total profit (the fits of Musashi and Rina) is now $ False: Based on the fact that both Musashi and Rina increased production from the initial cartel quantity, you know that the output effe than the price effect at that quantity. O True O False nat Musashi and Rina started by behaving cooperatively. However, once Musashi decided to cheat, Rina decided to cheat as well. In other output decisions are based on Musashi's actions.