QQuestionBusiness Law
QuestionBusiness Law
Cartels are difficult to maintain because
a. the number of firms is always large.
b. each firm has an incentive to deviate from its agreed output level.
c. the monopoly output is very difficult to determine.
d. costs to the firms in a cartel are continually rising.
3 months agoReport content
Answer
Full Solution Locked
Sign in to view the complete step-by-step solution and unlock all study resources.
Step 1: Identify the correct answer based on the reasoning provided.
The question asks for the reason why cartels are difficult to maintain. A cartel is a group of independent firms that collude to fix prices, limit production, or share markets. The correct answer is option (b), as each firm in a cartel has an incentive to deviate from its agreed output level to increase its own profits.
Step 2: Explain the reasoning behind the correct answer.
In a cartel, firms agree to limit their production to support higher prices. However, each firm has an incentive to increase its output to gain a larger market share and higher profits. When a firm increases its output, it contributes to a lower market price, which negatively affects the profits of other cartel members. This behavior creates a conflict of interest within the cartel and makes it difficult for them to maintain the agreed-upon output levels.
Final Answer
The correct answer is option (b): each firm has an incentive to deviate from its agreed output level.
Need Help with Homework?
Stuck on a difficult problem? We've got you covered:
- Post your question or upload an image
- Get instant step-by-step solutions
- Learn from our AI and community of students