Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when and Gary's profits are highest when .

Niether firm cheats on the cartel agreement; Gary Cheats on the cartel agreement and Frank doesn't.

Explanation:

Gary's Gas and Frank's Fuel are examples of a duopoly.

A duopoly is when two firms dominate an industry.

A cartel is when firms come together collusively in order to increase their profits.

A cartel involves either agreeing on the price to sell a product or the quantities of a product to produce.

When two firms form a cartel and one firm cheats on the agreement, the party that cheats earns the highest profits.

When two firms form a cartel and both firms cheat on the agreement, both parties earn the lowest profit.

When two firms form a cartel and both firms keep to the agreement, the profit earned by both firms is higher than when both parties cheat on the agreement but lower than the profit earned when one company cheats.

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