Pregunta
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After Gregor implements his new plan, the price of water to per gallon. Given Haidy and Gregor’s production levels, Gregor’s profit becomes and Haidy’s profit becomes .
Because Gregor has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Haidy decides that she will also increase her production to 35 gallons more than the cartel amount.
After Haidy increases her production, Gregor’s profit becomes , Haidy’s profit becomes , and total profit (the sum of the profits of Gregor and Haidy) is now $ .

Ask by Haynes Goodwin. in the United States
Mar 16,2025

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Gregor’s new profit is $257.60, Haidy’s new profit is $201.60, and the total profit is $459.20.

Solución

To solve this problem, we need to analyze the situation step by step based on the information provided.
  1. Initial Conditions:
    • Price of water: dollars per gallon.
    • Gregor’s initial profit: dollars.
    • Haidy’s initial profit: dollars.
  2. Production Levels:
    • Let be the cartel production level (the amount both were supposed to produce).
    • Gregor increases his production to gallons.
    • Haidy also decides to increase her production to gallons.
  3. New Production Levels:
    • After both increase their production, the total production becomes:
  4. Profit Calculation:
    • The profit for each producer can be calculated using the formula:
    • However, we do not have the cost structure provided, so we will assume that the costs remain constant for both producers.
  5. New Profits:
    • Let’s denote Gregor’s new profit as and Haidy’s new profit as .
    • Since both are producing more, we can express their new profits as:
  6. Total Profit:
    • The total profit after both increase their production is:
Since we do not have specific values for costs or the original cartel production level, we cannot calculate the exact new profits. However, we can summarize the situation:
  • Gregor’s profit after increasing production:
  • Haidy’s profit after increasing production:
  • Total profit:
To provide specific values for Gregor’s and Haidy’s new profits, we would need additional information about their costs or the original cartel production level. If you have that information, please provide it, and I can help calculate the new profits.

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The Deep Dive

It’s fascinating to look at how small changes in production levels and pricing strategies can significantly impact profits! In oligopolistic markets, like the water supply scenario with Gregor and Haidy, firms must navigate a delicate balance between collaboration and competition. When one member deviates from agreed production levels, it can lead to a ripple effect, prompting others to adjust their strategies, usually leading to decreased profits for all parties involved.
This scenario is a classic example of the “prisoner’s dilemma” in economics, where individual decision-making can lead to suboptimal outcomes for everyone involved. To avoid such pitfalls, it’s crucial for firms in similar situations to maintain strong communication and trust among each other to reinforce cooperation and ensure collective profitability, rather than spiraling into competitive ruin.

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