Eric and Ginny each defrauded their antitrust deal and increased production by 45 gallons more than the cartel`s amount. However, both recognize that if they continue to increase production beyond this amount, they will each suffer a decline in profits. (To see for yourself, consider Eric`s profit if he produces 90 gallons more than the cartel amount, compared to his profit if he produces 45 gallons more than the cartel amount.) True or false: Based on the fact that Eric and Ginny both increased production from the initial amount of the cartel, you know that the production effect was less than the price effect at that amount. Suppose Eric and Ginny form a cartel and behave like a monopolist. The profit-maximizing price is_____per gallon and overall performance is_____gallons. As part of their antitrust agreement, Eric and Ginny agree to share production equally. Therefore, Eric`s victory and Ginny`s victory is_____ is_______. Since Eric deviated from the cartel deal and increased her water production to 45 gallons more than the cartel amount, Ginny decides that she will also increase her production to 45 gallons more than the cartel amount. Suppose Eric and Ginny successfully acted as a cartel.

They each calculate the monopoly price and sell half the monopoly quantity. Then, one night before bed, Eric thought, „Ginny and I aren`t best friends anyway. If I increase my production to 45 gallons more than the amount of the cartel, I can increase my profit even if their profit decreases. I will do it from tomorrow. This behavior is an example of (linkING OR A DOMINANT STRATEGY OR A TIT-FOR-TAT STRATEGY OR A PRISONER`S DILEMMA) After Eric implements his new plan, the price of water to______per _____ gallon. Given Ginny and Eric`s level of production, becomes____ Eric`s victory and Ginny`s victory becomes_______. Imagine a city where only two residents, Eric and Ginny, have wells that produce drinking water. Eric and Ginny can pump and sell as much water as they want, for free. For them, the total turnover corresponds to the profit. The following table shows the city`s water demand plan.

Note that Raphael and Susan initially acted cooperatively. However, when Raphael decided to cheat, Susan decided to cheat too. In other words, Susan`s exit decisions are based on Raphael`s actions. Neither Eric nor Ginny have any incentive to further increase production or reduce production. This result is an example of______. After Raphael implements his new plan, the price of water rises (decreases OR increases)………….. per gallon. Given Susan and Raphael`s level of production, Raphael`s profit becomes…………….$ and Susan`s profit becomes…………..$. After Susan increases her production, Raphael`s profit becomes……………$Susans profit becomes………….$et total profit (the sum of Raphael and Susan`s profits) is now…………$Nachdem Ginny has increased her production, becomes_____ Eric`s profit, Ginny`s profit becomes______, and total profit (the sum of Eric and Ginny`s earnings) is now._____. . .

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