Being Part of a Cartel Is Generally Good for a Firm

question 96

Multiple Choice

Being part of a cartel is generally good for a firm because it can reduce output while increasing prices and profits.Yet most cartels have failed.Why is this the case?

• A) Cartels lack a dominant strategy.
• B) As the cartel becomes more profitable,competition increases.
• C) Cartel members dislike having to equally share profits.
• D) Each member of the cartel faces an incentive to cheat and produce more,while all of the other members honor the agreement.
• E) Cartel members eventually go out of business.

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Definitions:

Authorized

Officially given permission or power to do something, often used in legal and corporate contexts.

Issued

Refers to the process of allocating or distributing something, such as shares or official documents, to individuals or entities.

Outstanding

Refers to shares that have been issued by a company and are currently held by investors, including shares held by the public and restricted shares held by company insiders.

Nonoperating Income

Income that a company makes from activities not related to its core business operations, such as investment income or profits from the sale of assets.