True or false: as Eric and Ginny both increased production from the amount of the original cartel, you know that the production effect was smaller than the price effect of that quantity. Eric and Ginny each defrauded their cartel and increased production by 45 gallons more than the cartel quantity. However, they both recognize that if they continue to increase production beyond that amount, they will each experience a decline in profits. (To see this for yourself, consider Eric`s profit if he produces 90 gallons more than the cartel`s amount relative to his profit, if he produces 45 gallons more than the cartel amount.) Suppose Eric and Ginny managed to be cartels. They each charge the price of the monopoly and sell half the monopoly quantity. Then, one night before bed, Eric says to himself, „Ginny and I are not best friends anyway. If I raise my production to 45 gallons more than the cartel, I can increase my profits, even if their profits go down. That`s what I`ll do tomorrow. Suppose Eric and Ginny form a cartel and behave like a monopoly. The maximum price is_____per gallon, and the total production is_____gallons. As part of their agreement, Eric and Ginny agree to ensure a fair distribution of production.

Hence is_____ Eric`s profits, and Ginny is_______`s profits. With Eric deviable from the agreement and increasing his water capacity to 45 gallons more than the cartel`s quantity, Ginny decided that it would also increase its production to 45 gallons more than the cartel quantity. After Eric implemented his new plan, the price of water to______per gallon. The production levels of Ginny and Eric becomes____ Eric and Ginny becomes_______ . . This behaviour is an example (linking a dominant strategy or a tit-for-act strategy or a prisoner dilemma). After Ginny increased his production, Eric`s profit is becomes_____, Ginny`s profit is becomes______ and the total profit (the sum of Eric and Ginny`s profits) now._____ Note that Raphael and Susan have begun to cooperate. But when Raphael decided to cheat, Susan decided to cheat. In other words, Susan`s Production Decisions are based on Raphael`s actions. Neither Eric nor Ginny has an incentive to increase production and does not encourage production to be reduced. This result is a of______ example.

. Think of a city where only two people, Eric and Ginny, have wells that produce water for drinking.