After Neha increases her production, Lorenzo\'s profit becomes ,Neha\'s profit b

Question

After Neha increases her production, Lorenzo's profit becomes ,Neha's profit becomesS and total profit (the sum of the profits of Lorenzo and Neha) is now s True or False: Based on the fact that both Lorenzo and Neha increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that True False Note that Lorenzo and Neha started by behaving cooperatively However, once Lorenzo decided to cheat, Neha decided to chéat Barenlo s actions words, Neha's output décisions are based on Lorenzo's actions This behavior is an example of

Explanation / Answer

1) $ 3 is the optimal price because profit is maximized at this price

2) Total output = 270 units

3) Lorenzo's profit = Total profit / 2 = 810/2 = $ 405

4) Neha's profit = 810/2 = $ 405

5) Decreases to $ 2.50

6) Lorenzo's profit = (270/2 + 45) x 2.50 = 180 x 2.5 = $ 450

7) Neha's profit = 135 x 2.5 = $ 337.5

8) Lorenzo's profit = 180 x 2 = $ 360

9) Neha's profit = 180 x 2 = $ 360

10) Total profit = 360 + 360 = $ 720

11) False

12) Tit-for-tat strategy

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