Final answer:
Sam and Teresa form a cartel and act as a monopolist. They set a price of $28 per gallon, produce a total of 6,000 gallons, and each earn a profit of $84,000.
Step-by-step explanation:
When firms collude to form a cartel, they act collectively like a monopolist. In this scenario, Sam and Teresa are forming a cartel and will thus set the price and output level where marginal revenue (MR) equals marginal cost (MC), emulating the behavior of a monopoly in maximizing profits. Drawing a line from the monopoly quantity up to the demand curve illustrates the monopoly price. Assuming zero fixed costs and a marginal cost curve that is horizontal, indicating that average cost is equivalent to marginal cost, we would conclude that the cartel can earn positive economic profits. This profit is the area of a rectangle with its base equal to the monopoly quantity and its height being the difference between price and average cost. If the cartel is splitting production equally, and given the choices available, the correct answer would imply that each member would earn an equal share of these profits. Therefore, Sam's profit should match Teresa's profit, making option b) $28; 6,000 gallons; $84,000; $84,000 the main answer, as it presents equal profits for both.