Asked by TEDDY VELISSARIS on Jun 12, 2024
Verified
Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:
A) producing more than the quantity that maximizes joint profits.
B) producing less than the quantity that maximizes joint profits.
C) charging more than the price that maximizes joint cartel profits.
D) advertising less than will maximize joint cartel profits.
Collusive Agreements
Arrangements or agreements, often illegal, between competing firms to limit competition, control prices, or divide markets among themselves.
Cartel
A formal agreement among competing firms to control the market for a certain product by setting prices, limiting supply, or other restrictive practices.
- Understand the conditions under which collusive agreements are difficult to maintain.
Verified Answer
RS
Ramatu Sidi AliyuJun 18, 2024
Final Answer :
A
Explanation :
Collusive agreements, such as those in a cartel, are difficult to maintain because each firm has an incentive to cheat on the agreement by producing more than the agreed-upon quantity. This allows the firm to capture a larger market share and increase profits, even though it undermines the collective profit maximization goal of the cartel.
Learning Objectives
- Understand the conditions under which collusive agreements are difficult to maintain.