Suppose that Bob and Cho 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, Bob says to himself, "Cho and I aren't the best of friends anyway. If I increase my production to 35 gallons morethan the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."After Bob implements his new plan, the price of waterprofit becomes $After Cho increases her production, Bob's profit becomes $the profits of Bob and Cho) is now $Ⓒ Trueincreases/decreasesand Cho's profit becomes $Because Bob has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Cho decides that shewill also increase her production to 35 gallons more than the cartel amount.FalseThis behavior is an example oftoper gallon. Given Cho and Bob's production levels, Bob'sTrue or False: Based on the fact that both Bob and Cho increased production from the initial cartel quantity, you know that the output effect was largerthan the price effect at that quantity.fill in blankCho's profit becomes $, and total profit (the sum ofNote that Bob and Cho started by behaving cooperatively. However, once Bob decided to cheat, Cho decided to cheat as well. In other words, Cho'soutput decisions are based on Bob's actions. 3. Breakdown of a cartel agreementConsider a town in which only two residents, Bob and Cho, own wells that produce water safe for drinking. Bob and Cho can pump and sell as much wateras 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)3.603.303.002.702.402.101.801.501.200.900.600.300Quantity Demanded(Gallons of water)03570105140175210245280315350385420Total Revenue(Dollars)0$115.50$210.00$283.50$336.00$367.50$378.00$367.50$336.00$283.50$210.00$115.500Suppose Bob and Cho form a cartel and behave as a monopolist. The profit-maximizing price is $per gallon, and the total output isgallons. As part of their cartel agreement, Bob and Cho agree to split production equally. Therefore, Bob's profit is $Cho's profit is $andI

Disclaimer: Since it is a multipart question, I am providing you with the answer to the first three…

Suppose that Bob and Cho have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. hen one night before going to sleep, Bob says to himself, "Cho and I aren't the best of friends anyway. If I increase my production to 35 gallons more han the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." fter Bob implements his new plan, the price of water rofit becomes $ increases/decreases and Cho's profit becomes $ fter Cho increases her production, Bob's profit becomes $ he profits of Bob and Cho) is now $ True ecause Bob has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Cho decides that she vill also increase her production to 35 gallons more than the cartel amount. False to $ per gallon. Given Cho and Bob's production levels, Bob's , Cho's profit becomes $ rue or False: Based on the fact that both Bob and Cho increased production from the initial cartel quantity, you know that the output effect was larger han the price effect at that quantity. , and total profit (the sum of lote that Bob and Cho started by behaving cooperatively. However, once Bob decided to cheat, Cho decided to cheat as well. In other words, Cho's utput decisions are based on Bob's actions.

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 3E