3. Breakdown of a cartel agreement Consider a town in which onlytwo residents, Clancy and Eileen, own wells that produce water safefor drinking. Clancy and Eileen can pump and sell as much water asthey want at no cost. For them, total revenue equals profit. Thefollowing table shows the town's demand schedule for water. PriceQuantity Demanded Total Revenue (Dollars per gallon) (Gallons ofwater) (Dollars) 3.60 0 0 3.30 30 $99.00 3.00 60 $180.00 2.70 90$243.00 2.40 120 $288.00 2.10 150 $315.00 1.80 180 $324.00 1.50 210$315.00 1.20 240 $288.00 0.90 270 $243.00 0.60 300 $180.00 0.30 330$99.00 0 360 0 Suppose Clancy and Eileen form a cartel and behaveas a monopolist. The profit-maximizing price isper gallon, and thetotal output isgallons. As part of their cartel agreement, Clancyand Eileen agree to split production equally. Therefore, Clancy'sprofit is, and Eileen's profit is. Suppose that Clancy and Eileenhave been successfully operating as a cartel. They each charge themonopoly price and sell half of the monopoly quantity. Then onenight before going to sleep, Clancy says to himself, \"Eileen and Iaren't the best of friends anyway. If I increase my production to30 gallons more than the cartel amount, I can increase my profiteven though her profit goes down. I will do that startingtomorrow.\" After Clancy implements his new plan, the price of watertoper gallon. Given Eileen and Clancy's production levels, Clancy'sprofit becomes and Eileen's profit becomes. Because Clancy hasdeviated from the cartel agreement and increased his output ofwater to 30 gallons more than the cartel amount, Eileen decidesthat she will also increase her production to 30 gallons more thanthe cartel amount. After Eileen increases her production, Clancy'sprofit becomes, Eileen's profit becomes, and total profit (the sumof the profits of Clancy and Eileen) is now. True or False: Basedon the fact that both Clancy and Eileen increased production fromthe initial cartel quantity, you know that the output effect wassmaller than the price effect at that quantity. True False Notethat Clancy and Eileen started by behaving cooperatively. However,once Clancy decided to cheat, Eileen decided to cheat as well. Inother words, Eileen's output decisions are based on Clancy'sactions. This behavior is an example of .